Taxi Driver, Blogger, PHD.

Yo WTFBBQ! may be among the first few reactions anyone would have when confronted with such a phenomenon. You know, like; A taxi driver you say? and a blogger? ah that’s nothing new! New York is filled with guys like that!

What? so he’s from Singapore. So what? different city… What? The man has a PHD? from STANFORD UNIVERSITY?

YOWTFBBQ!!!???

Actually he was a bio engineer something at this massive firm and got laid off work a couple years ago. His chances of finding a new job in research plummeted after the Great Recession hit and he decided in a bold career move to start driving taxis.

The man started blogging to alleviate boredom. And probably to try and infuse some intellectual adventure into his life as a taxi driver. Global Voices Online has a sort of critical analysis on the whole case.

Check his blog out, it’s got details on where to find Thai girls in it. And a wealth of other cultural information (rambleramble..)

http://taxidiary.blogspot.com/

The Effects of Stimulants

Government stimulants seem to be working in China, car sales have been boosted 48% as of June. With GM getting a good share of the profits. China seems to be on the rise again, at least as per some optimists. Stimulants are a main element of Keynesian economics and are credited to have brough about the end of the Great Depression.

Germany: Taxing less, Spending more

Germany; Stimulating spending; Courtesy Yah

Germany just announced a plan to cut taxes in order to stimulate their economy. The worlds third largest economy is in a small patch of quicksand right now. It has already hit recession and forcasts are that it will contract around 3% more this year.

Exports are not doing too well as demand for German products fall along with global spending power. Germany was the world’s largest exporter of goods last year. Unemployment is set to increase as the current boom in German employment tops off. This will consequently increase government expenditure in terms of social benefits and welfare.

Reducing taxes at a time like this is a controversial decision. Angela Merkel, the German Chancellor has come under fire because the new policy will lose the government around 15 billion Euros and risk reducing GDP by a further 6% this year.

That is quite a significant amount for a massive economy like Germany. Also with the new tax breaks, the giovernment will be funding a budget deficit. Though Keynesian economic theory states that funding a deficit by reducing taxes can be good for an economy in trouble, as it stimulates inflation, the long term outlook is grim because the any additional cash people recieve will probably be saved instead of spent.

Still, it’s a start. As money is saved this will increase the amount of cash in the economy and stimulate capital investment, which will in turn provide jobs and then create a less uncertain environment and aggregate demand will increase as a consequnece of this. But that takes a long time to happen. And Germany may go through some tough times before it gets to more solid ground.

Meanwhile, though markets are changing and demand for some German exports such as Automobiles, electronics, machinery, foodstuffs etc may be effected by changing market trends or if there is a major change in the geo-political landscape. This seems unlikely in the near future. Though competition like Chinese exports could have posed a threat, they would only do so if not for the tightly bound Eurozone regulations, which Germany is extremely particular about. So any threat to their main exports right now, seems minimal; ensuring a strong core economy into the near future at least.

US Economy on the Rise?

The US was officially classed as an economy in recession after its last peak in December 2007 (NBER) after which it had two consecutive quarters of negative growth. A recession as defined by the National Bureau of Economic Research is

 A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Anyway to cut a long story short, they identified the last peak of the US economy as December 2007 after a significant period of decline followed it which was sufficient enought to be identified as a time of recession.

Taking the generally accepted definition of a recession i.e. ‘a recession is indicated by two consecutive quarters of negative/a decline in real GDP’ we can deduce that for the recession to stop and for growth to start the GDP should pick up.

Recession = Contraction period

The GDP of an economy is measured as follows

GDP = Consumer spending + Investments + Government spending + (Exports - Imports)

or GDP = C + I + G + (X – M)

Now according to this BBC report the The American Bankers Association’s Economic Advisory Committee thinks the US economy is set to grow in the third quarter of 2009. Im sure this is good news all around as a recovery in the US economy will probably mean eventual growth for other nations as well.

But is it really going to be a sustained growth?

Opinions of different schools of economic thought vary on the best option to handle a recession. The end of the Great Depression of the 1930s is credited to the policy ideas of John Maynard Keynes who suggested increasing government spending as a method of boosting production. In practice, this can even involve activities metaphorically akin to the famous paying-people-to-dig-holes-and-fill-them-up-again scenario.

But some are of the opinion that the massive government spending of the second World War is what ultimately brought the world out of the depression, leading to uncomfortable thoughts on the current global economy and political environment.

Monetary economists advocate the use of expansionary monetary policy by reducing interest rates to stimulate borrowing and thereby increasing spending power and eventually consumer spending. The Supply-side economists advocate tax cuts to promote business capital investment.

The general consensus among most economists is that a recession is a problem born of a drop in aggregate demand (meaning the total demand for goods and services within an economy). Therefore, as we can see, theoretical suggestions are mainly directed at stimulating at least one area of an economy that would contribute to a pick up in GDP.

The US’s new forecast of a growth of 0.5% seems largely due to an increase in consumer spending which can possibly be attributed to the drastic reduction we have seen in the US’s interest rates over the past few months. Also, government spending on dying corporates and banks caused still more money to be injected into the system and would have boosted produtivity somehow, somwhere.

However, unemployment is set to increase to 10% and the overall outlook of employement does not look too good for the next year and a half or so although the increase in consumer spending (which two thirds of the the US economy is driven by), is hoped to temper this.

But there are still deeper problems. According to the BBC the damage caused to the Public Finances and the Labor markets are still substantial and industrial production has fallen more than analysts expected.

There is also the problem of the US’s growing trade deficit, which is not helping.

Therefore there are mixed signals on the status of this ‘recovery’. It could be the beginning of a slow climb back to the top or it could just be a random spurt of growth brought on by arbitrary circumstances. We should hope for the former.

The Next North Eastern Boom

the drivers of civilization

After years of being ravaged by the war the North-East is set for more Booms. But this time we are hoping for a good boom. As in an economic boom.

With the opening up of the territory, firms have already begun to show interest in expanding into the North East. The obvious beginning would be to start with production, like agriculture and fisheries. Once these base industries are developing then there will be more room and demand for industries such as banking and telecommunications to enter the fray.

Tourism is looking positive with firms like John Keells, Softlogic Holdings and some foreign parties expressing interest to invest (FT). Although we will still be under the gloomy canvas of low tourist turnover due to the global financial crisis there should be enough demand to justify large investment in North-Eastern tourism.

Marketing will play a big role in making tourism a success and this is the perfect time for the industry to seize a chance for a comprehensive international campaign. Tourists are more picky with their destinations and will need a lot of convincing to invest their money in a particular alternative, the SL industry must fight now to create the worldwide buzz and top of the mind awarenss of a top tourist destination. I blogged about another possible marketing angle here.

Other industries set to boom include construction and engeneering consultancies. There will hopefully be a lot of inflow of funds with China and Iran already pledging some USD 1 billion and 1.9 billion respectively (FT). Construction funds must be used wisely and wherever possible, local firms should be enlisted to contracts in a way that efficiency is not compromised.

On the topic of efficiency, everyone is now worried about corruption and the mishandling of development funds by corrupt government officials. Of the tsunami aid scenario was anything to go by the Rajapakshe administration will have to ensure that none of that occurs this time around. But this may be asking for too much.

Government revenues are dropping, while expense is set to increase a lot according to Dr. Srimal Abeyratne senior econ lecturer at the Colombo University speaking to the Financial Times. The governments expected revenue increase of Rs. 200 billion is said to be too optimistic as the industries on which it relies on for tax income are suffering too much as a result of the global crisis.

The government needs to ensure optimum efficiency gains and ensure it uses its current strong position to make some concrete changes in the public framework that will improve the government services sector. This includes cutting staff and saying no to loss making departments. ‘..In the long term, these painful changes will strengthen the government’s traditionally weak financial position’ says Dr. Abeyratne.

A mini credit crunch in the local banking system is not helping anyone either. With the central bank’s reduced interest rates not being translated into cheaper commercial lending rates. leasing companies have jacked up their deposit requirements and the velocity of money is down because of high saving rates and low consumer spending. This needs to be eased up.

Whether these changes happen or not, it is apparent that we may have a shot at having a better chance of riding out the ill effects of the global financial crisis if we experience (and more importantly, take advantage of) a mini boom in Sri Lanka. Hopefully when the boom begins to subside the global system would have reached a more stable position, helping to prolong it.

Oil Hike on the way?

Looks like we’ll be soon confronting higher oil prices again. But the paradox is that the prices will remain low as long as the economy is in a slump. The moment it picks up the pace and starts wanting more fuel to power its machine the prices will start flying.

This Economist report quotes analysts as predicting the arising of more ‘super cycles’ where the usual boom bust commodity cyles are interrupted and longer periods of price increases are seen as developing economies start absorbing and draining resources and thereby initiating prolonged (and potentially destructive) demand cycles.

The main reasons behind the initial price hike have apparently remain unchanged. All the easy-to-access oil fields are in the hands of governments and the Big Oil firms are having to increasingly resort to drilling in nooks and crannies to find more oil. Also a slump in oil prices back in the 80s have limited investment in oil reserves amd therefore most of current sites not new ones.

The Big oil firms claim to be heavily investing in new oil fields and technology although the benefits will only be reaped in a decade or so. Government companies Like Saudi’s Aramco and Brazil’s Petrobas have invested heavily in more capacity but other governments like Iran and Venzuela are reluctant to do this due to the current low prices in the market.

Countries like Russia and Venezuela are facing serious cash flow problems and are pressurizing private investement and sub-contractors with more taxes and no wages. In Nigeria the fighting around the Niger Delta with forces such as the MEND are creating some serious barriers to development of production

So oil firms have no new oil to speak of and other pressures on goverment firms will prevent them from increasing output. All except for the Saudi’s who have about three times the current capacity of production up their sleeves.

McKinsey, the consultants, argue that governments can help overcome this problem with a few simple measures. The more practical of which are increasing lorry load limits to increase fuel efficiency, increasing emmission standards and efficiency standards even more in the long run will undoubtedly help to curb demand.

Other measures that have been carried out in the past include investment in alternate energy sources, but the disastrous impact of bio fuels should have taught us a thing or two about the importance of thinking out such steps in detail. Electric cars are also a good option and it is encouraging to see quite a few global car makers coming out with models.

But all this has taken a back seat to the financial crisis. When the oil prices dropped so drastically everyone stopped thinking of the ‘oil problem’ in the classic short termist fashion characteristic of world governance. Bigger problems were at hand and opportunities to perhaps lay a foundation for a whole new energy culture were probably too far fetched and unimportant to care about then.

So now as the economy picks up again we may be confronted with bigger problems because now we won’t have a sub-prime morgage crisis to pull us away from strangling each other in a scramble for natural resources. Already oil futures markets are indicating a potential rise in prices.

Which brings me to McKinsey’s other suggestion; convincing developing economies to remove oil subsidies. This is something that these economies will definitely not agree to. They will argue that subsidies are essential to their growth. Moreover, they will question the fairness of such a request as economies that are ‘developed’ today got to such a state by the unrestricted consumption of all the resources they could lay their hands on.

China’s Oil demand has risen to pre-crisis levels (and unrelated note: their military prowess has arisen to previously unheard of levels), but global demand is still on a downward trend as decline is still apparent from other big world economies. But as long as oil remians a critical resource, the problem faced a few months ago will materialize again, and specultion will drive the prices even higher, with a corresponding increase in other commodity prices worldwide.

Steps need to be taken starting immeditely to make sure that oil is not a  critical resource, but to this end there is also a lot of disincentive for powerful oil economies and lobby groups. There is always money to be made for the oligarchs, and high oil prices are something they will definitely welcome with open arms.

Making Sense of Stimulants

The Watchtower’s W.A Wijewardena again offers a great piece on the basics of stimulus packages. A must read for anyone trying make sense of this burgeoning phenomenon.

Frankensteining the Economy

heres a quick fix to the financial crisis.

The whole thing happened cos the housing market failed right? So people defaulted on their loans and cleared outta their homes. Leaving banks stuck with useless debt and unsellable houses. So what do they do? They sell the houses to the Indians! and the Chinese and the Sri Lankans! im sure we’ll (speaking for all Asians) be glad enough to lap up good houses going cheap in the most developed nation of the world.

But then they’d have to grant us VISAs. Otherwise whats the point? no ones gonna buy a house they cant live in. So they give us VISAs and a million or so more immigrants enter the US. In case ur thinking people over here cant afford to buy US homes, thats not true. Theres a lot of money around these parts. The Indian ocean is gleaming with it.

So the Zombie banks sell their houses cheap and recover most of their money. The people who went to the US are happy cos they are now in ‘the land of the free’. The US doesn’t mind a coupla million more immigrants as long as they work hard and pay their medical insurance. The defaulters can rent rooms in the houses being bought. OR the owners can stay in Asia and rent their new homes out to homeless Americans.

The crisis will be nullified due to all the toxic assets being taken care of (because every house will be sold to clamouring Indians and Chinese – and the odd Lankan politician - with bulging pockets), banks will be standing on their own two feet again, and soon theother banks wont be so suspicious anymore of lendng out money, and the velocity of money going around the economy will slowly increase and permeat the air with some green crispness.

Trade will pick up as credit eases and confidence increases. Recruitment will start and people will find work again. And we shall all start living life as normal. The rich will once again become richer at a steady pace. no more uncertainty for them. And the poor will once again be poor in confidence. No more uncerainty for them either.

There. problem solved.
Stay tuned for; Conspiracies of the Crunch - predicting possible future credit crunch conspiracy theories (cue ominous music).

Obama’s Plan; Just Glitz and Glam?

So what has Obama done so far? Where is this ‘change’ that has been going around apparently for the whole world to see? Only change I see is a darker tone of skin in the white house.

People are still dying in Iraq, casualties have only increased lately including those of US soldiers. Violence has exacerbated in Pakistan, the Taliban has expanded its control. The Gaza Strip and the West Bank are no better. Sure, you may say that the 100;1 ratio of Palestinian to Israeli deaths officially still happened during Bush’s last days but Obama was still president elect, and in the name of humanity, he could have said something or raised a protest. Reasonably supposing that he really knew what was going on.

The UN security council was going to pass a motion, simply a statement condemning the Israeli attacks, but even a mere statement against the war crimes being committed by Israel was vetoed by the United States. This was the same United States whose public was caught up in the wave of ‘change’ and ‘Rebranding America’ etc. Obama didn’t even raise a finger in protest. Hiding behind his ‘presidential elect’ status to absolve himself of any responsibility.

His flumbering beginnings in handling the ‘Financial Crisis’ have proven inadequate to say the least. The much harped about G20 produced nothing less than ‘heroic hypocrisy, unreliable sums, weak promises, meaningless language and self-serving commitments other than a very few worthwhile achievements’ (read more of Miles Saltiel’s report). His ‘stimulus’ packages have drawn widespread criticism from many economists (big names like Krugman and Stiglitz) as being extremely inappropriate given the current banking system.

It is increasingly looking like the boom-bust cycle will need to run its course until markets make their own recovery and Keynesian style hole digging and re-filling stimulus plans may or may not get us there quicker, but they will not work in the US is pumping its money into largely inefficient and loss making banks.

Also, where is the inquest into what happened in the Bush years? Where is all the war crime and 9/11 conspiracies that need to be investigated? The advent of Obama and his main calling card ‘change’ served the most effective purposes of brainwashing the world community into forgetting all about the previous years of US rule. It had the effect of making them think that ‘hey, here’s a new guy, let’s just forget the old guy, let’s change and move on’. But that change itself was insubstantial and mostly made up of clever and emotionally appealing rhetoric. And those of us who expected some actual substance from the man after he gained office will soon be sorely disappointed.

Local Ponzi Rising

Yes. Again. And this time it seems, on a far bigger scale.

The Merchant Bank of Sri Lanka an ‘investment bank’ and a listed subsidiary of state-run Bank of Ceylon has taken over and is planning to ‘restructure’ Ceyliinco Group’s Finance and Guarantee group of companies. According to this LBO report.

Meanwhile, all refunds from these companies have been stopped. Mainly to prevent ‘influential’ depositors getting their funds at the expense of others and a recovery plan will be revealed in ‘two weeks’ according to a media report released by MBSL.

Apparently there is a ‘sufficent asset base’ present and investors in F&G real Estate Co. will have to only sacrifice ‘certain time period’ to get their refunds. This from the MBSL chairman Janaka Ratnayake.

Now it doesnt exactly specify if full refunds will be available, but if you were an investor in that group, and if i was you, i’d start wondering a bit because the same report specifically states that the F&G groups assets were 13.5 billion while their liabilities were 12879 billion.

Yeah, have another look at those numbers. Now im not a big financial guy but even i know that a thousand to one difference between liabilities and assets will spell trouble. Even assuming most of these liabilities were not long term.

Mr. Ratnayake also said that F&G Real Estate Company Ltd had been offering interest rates of 42% per year for some customers and has been rolling over deposits. Now does that ‘investment strategy’ remind you of anything else? like for e.g. Bernard Maddof? The chap who pulled off a $50 Billion Ponzi scheme under the eyes of the likes of Alan Greenspan?

And if we thought Sakvithi was bad, he’ll be chickenfeed in comparison to the potential destruction if the MBSL restructuring plan somehow fails and all this money is lost.