China and the global economy

I hardly write about the Chinese economy, preferring to concentrate on the global economy.

There are many who better understand the Chinese economy, whereas my comparative advantage has been in the international economy.

But the rise of China to become an important economy means that no Chinese policy can be discussed without reference to international implications and vice versa.

Now that there are signs of improvement in the global economy, the current hot debate has been about two issues: the Greek crisis and the Chinese renminbi (RMB).

I see the Greek issue as one of the contradictions of European integration, while the RMB is a flashpoint of cross-Pacific balance. Both deserve evaluation on a more objective plane from a longer and wider perspective.

Looking 30,000 feet up, the Greek problem is fiscal over-spending of a smaller member of a fixed exchange rate regime, the euro.

Since Greece cannot devalue its way out of the problem, the only solution is to borrow temporarily from the European Union members and the International Monetary Fund, and slowly shrink its fiscal deficit to a more sustainable level.

Thus, the greater issue is the trade imbalance across the Pacific. Even though the US current account deficit has ameliorated to just around 3% of gross domestic product (GDP) and the Chinese surplus has also halved to 5% of GDP, we should not forget that Germany, Switzerland and Norway are running surpluses in excess of that.

Saudi Arabia and other oil producers are similarly a major source of trade surpluses. No one hears the US grumbling about asking the Gulf oil producers to delink their currencies from the US dollar.

Actually, my personal view is that the RMB issue is a short-term one, whereas what we should really be worried about is the right economic model within the next 30 years, both in China and globally.

It is not just the economic model, but also the financial model, because the present financial model and its regulatory structure, as former US Treasury Secretary Hank Paulson frankly said during his visit to Beijing recently, is broken.

Why the next 30 years? The next 30 years will be the second half of the 60-year cycle after China embarked on the opening up strategy in 1979.

Based on various projections of China’s current growth trajectory, the country may overtake the US in terms of nominal GDP in 2025-2030, and India may overtake Japan.

This is not a historical inevitability, as we know that Japan was touted as No. 1 in the late 1980s and was in terms of GDP and stock market wealth, a close second to the US very briefly.

But after the sharp rise of the Japanese yen post-Plaza Accord, Japan went into a debt deflation from which the country has still not recovered.

Modern Chinese philosopher Nan Huai-Chin, who has a huge following in Greater China, said in his review of Chinese history (that in looking at the rise of China in the modern world), we must reflect on three major questions.

The first is which Western model China should choose, because there is no single Western model to learn from?

The second is how to have a long-term vision to design, using science, technology and education, philosophy and culture, to create an unprecedented deed for humanity and contribute to mankind.

If not, scientific development could be like a wild horse without harness, and bring mankind to eventual destruction.

The third question is how the confluence of China with the West would influence China’s culture and political society? In this, Nan pointed to how Japan dealt with this question.

Unfortunately, Japan’s recent lessons have been more negative than positive. This is an issue that deserves greater analysis.

Since our economic theory has largely been learnt from the West, let me go back to classical economic analysis to see what challenges we are facing.

The Labour Theory of Value of David Hume and Karl Marx goes back to the three key factors of production, land, labour and capital. What do we find in 2010?

The price of capital is zero, under the zero interest rate policy and the printing of money by the global central banks.

The price of labour is very low, due to the rise of young labour from the emerging markets. The result is that the price of land is rising rapidly, as investors worry about long-term inflation.

In the advanced markets, the asset bubble has deflated, but in the emerging markets, because of globalisation and carry trade hot money, the asset bubbles are still emerging.

No emerging market can raise interest rates without attracting hot money from the carry trade, which is leveraged speculation.

Why is there speculation with such leverage? Because the costs of speculative mistakes have been rescued by governments, so that there is no pain or high interest rates that would have cleaned out the inefficient during a deflation.

Hence, my own conjecture is that we have not yet seen the end of this crisis. So far global growth has been due to fiscal pump priming and historically low interest rates.

From 30,000 feet up, there is also awareness that there are at least two crises going on – the global warming crisis and the financial crisis, both due to excessive consumption financed by excessive leverage.

So what is the solution? My answer to the first question by Nan about which Western (economic) model to choose is more straightforward. The choice is between the Anglo-Saxon model of free markets and the European model of Austrian institutional economics and Scandanavian socialism.

In my view, the Anglo-Saxon model has been found wanting by this crisis because of its unfettered greed and the widening gap between the wealthy and the under-class.

Surprisingly, the Japanese model is actually even more socialist than the Europeans through its consensus society.

In my next article, I shall draw upon Japanese views on where Japanese policies failed in the last 20 years.

·Datuk Seri Panglima Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book From Asian to Global Financial Crisis.

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The Greek tragedy

Foreign borrowing is rather dangerous. Ask the Greeks and they will tell you why

THE problem with big finance is that it forgets – it forgets history.

There was a time when bankers pushed the line that the best risk was a sovereign one. Find a country to lend to and you will be sure of getting your money back.

But in the eighties, South America proved all that wrong when Argentina and many other countries from the continent defaulted on their scheduled repayment of debts to international banks.

Their currencies headed south, their economies collapsed, prices soared and there was tremendous hardship all round for their citizens. In that instance, even the banks were not completely spared because they had to take a haircut – their loans were not always repaid in full.

Then came the roaring nineties when Asia, and especially the Tiger economies – which referred primarily to the South East and East Asian economies of Indonesia, Singapore, Malaysia, Thailand and South Korea – grew by leaps and bounds.

That was until the 1997/98 Asian financial crisis. Mired in external debt, and with currencies battered by wilting confidence and speculative attacks, Thailand, Indonesia and South Korea were brought down to their knees and sought help from the International Monetary Fund or IMF.

The contagion spread to Malaysia whose finances were relatively strong but which had significant foreign borrowings. South East Asian growth was crimped for years afterwards and even financial rock Singapore was shaken.

The pain was bad in the three worst affected countries as jobs were lost, industries and companies were restructured, assets divvied up and sold, in some cases to foreigners. Yes, there was pain – the proverbial blood in the streets.

As is well known by now, the IMF extracts its pound of flesh for the help it gives. It ensures that it is repaid by imposing extreme – and I mean extreme – austerity on affected countries. Indonesia faced interest rates of 30% – 30%! – a year in 1997. How could anyone survive that?

And it ensures that other creditors – the large international banks – are paid. The standard one-size-fits-all solution is the drastic depreciation of the currency to improve export competitiveness and bring in money from overseas, high interest rates to cut spending, and severe budget cuts.

And now we have Greece, Spain and Portugal. It’s a bit of a conundrum here because in this case they did not quite borrow in foreign currencies but in euros, their and the European Community’s currency. When the IMF is involved, the solution is the same – austerity. But the banks which lent the money go scot free.

How come, you ask, that the US spent its way out of a bad deal? Well the rest of the world lent money to the US but in US dollars, not some other currency.

That meant that the US could use its own currency and reserves to reflate the economy and save its banks and financial institutions.

That may not be quite magic. At some of point of time, there could be reverberations from that move.

All those dollars floating around the place could cause some future problems such as inflation and a weakened dollar. And if there is loss of confidence in the US, money could flow out. But that’s another story.

One lesson is that sovereign risk is not, well, risk-free. But if each time the IMF acts as if it is punishing the borrower but not the reckless lenders, it just encourages the same to be done again, and again. Really, should not the lenders to Greece take a haircut?

The other lesson is that countries, especially smaller countries, should think twice – no thrice – before loading on foreign debt. If your economy spirals and spins down, so does your currency. Your debt and repayments balloon.

Not only that, you may even be subject to penalty payments. You can’t pay on schedule but the banks hit you with a penalty because you can’t. Where’s the logic in that?

There’s plenty of liquidity in Asia (and Malaysia). Let’s not make ourselves too dependent on foreign liquidity either through debt or equity.


By P. GUNASEGARAM■ Managing editor P. Gunasegaram does not quite believe Shakespeare’s old adage “Neither a borrower nor a lender be”. But if you have to be either, know full well what you are in for.

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As College Graduates Hit the Workforce, So Do More Entitlement-Minded Workers

Newswise — As thousands of Generation Y college graduates flood the workforce this spring, the nation’s employers may want to brace themselves for a new crop of entitlement-minded workers.

Research conducted by Paul Harvey, assistant professor of management at the University of New Hampshire, shows that members of Generation Y are more entitlement-minded than older workers. For employers, that means more employees who feel entitled to undeserved preferential treatment, who are more prone to get into workplace conflicts and who are less likely to enjoy their job.

“Managers have reported a lot of problems associated with this – primarily that these employees have unrealistic expectations and a strong resistance toward accepting negative feedback. Basically entitlement involves having an inflated view of oneself, and managers are finding that younger employees are often very resistant to anything that doesn’t involve praise and rewards,” Harvey says.

According to Harvey, people who feel entitled to preferential treatment more often than not exhibit self-serving attributional styles — the tendency to take credit for good outcomes and blame others when things go wrong. And people with self-serving attributional styles are less happy in their jobs and more apt to cause conflict in the workplace, especially with their supervisors.

So what should older workers do when faced with younger co-workers who have a tendency to take credit for work they didn’t do? Harvey says one way to help combat a coworker with a self-serving bias is to document and collect evidence that may be useful in establishing who is responsible for positive and negative results.

“If you fear a coworker might take credit for something good you’ve done, it’s smart to keep evidence of your involvement in the outcome. For example, an email from a stakeholder thanking you for your effort or performance on a task that can be used to refute the claims of a coworker trying to take credit for what you have accomplished,” Harvey says.

“It’s also important to remember that even relatively objective people often have a slight self-serving bias. So before engaging a coworker for blaming you for a problem you feel you did not create or taking credit for a good outcome you think you are responsible for, it might be smart to make sure you’re being totally honest with yourself, too,” he says.

Entitlement is often thought of as a component of narcissism. Narcissists believe that they are worthy of a certain level of respect and rewards, and they are determined to get that level of respect and reward, no matter what.

“A great source of frustration for people with a strong sense of entitlement is unmet expectations. They often feel entitled to a level of respect and rewards that aren’t in line with their actual ability and effort levels, and so they might not get the level of respect and rewards they are expecting. They feel cheated and might try to obtain rewards they feel they are entitled to through unconventional, unethical means. This might involve behaviors like manipulating performance data to achieve higher bonuses, which have been linked to many of the problems we’ve seen recently,” Harvey says.

Harvey advises supervisors to remove as much ambiguity from situations as possible. To the extent possible, document who does what so that credit and blame can be accurately determined. He also suggests supervisors make sure everyone understands the organizational structure so that they understand who is responsible for what. He cautions, however, that this is easier said than done.

“In a recent study we found that managers who tried to correct entitlement perceptions through high levels of feedback and communication were often unsuccessful. In fact, in many cases these techniques actually appeared to make the problem slightly worse,” Harvey says.

And when it comes to new hires, Harvey suggests employers screen their entitlement levels. There are a number of ways employers could screen the entitlement levels of would-be hires, such as through surveys or interview questions, he says. For example, a hiring manager could ask a prospective employee the following: “Do you feel you are generally superior to your coworkers/classmates/etc., and if so, why?”

“If the candidate answers yes to the first part but struggles with the ‘why,’ there may be an entitlement issue. This is because entitlement perceptions are often based on an unfounded sense of superiority and deservingness. They’ve been led to believe, perhaps through overzealous self-esteem building exercises in their youth, that they are somehow special but often lack any real justification for this belief,” Harvey says.

The University of New Hampshire, founded in 1866, is a world-class public research university with the feel of a New England liberal arts college. A land, sea, and space-grant university, UNH is the state’s flagship public institution, enrolling more than 12,200 undergraduate and 2,200 graduate students.

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Prof. Paul Harvey discusses entitlement and Generation Y.

Paul Harvey, assistant professor of management at the University of New Hampshire

Available for logged-in reporters only


As thousands of Generation Y college graduates flood the workforce this spring, the nation’s employers may want to brace themselves for a new crop of entitlement-minded workers.

Low Testosterone linked to Poor Sleep; Beneficial Effects of Testosterone for Frailty

Poor Sleep in Aging Men Linked to Lower Testosterone

When men reach age 30, testosterone levels begin to drop by 1 to 2 percent annually, researchers say. Coincidentally, many men begin to complain at around age 40 about the quality of their sleep. Are the two linked?

Yes, one new study concludes.

The research revealed a link between testosterone levels in men over 50 and the amount of deep sleep they report.

“Deep sleep is when the recuperation of body and mind is optimal,”said study leader Zoran Sekerovic, a graduate student from the University of Montreal Department of Psychology.

In young men, deep sleep represents 10 to 20 percent of total sleep, Sekerovic explained in a statement. By age 50, it decreases to as little as 5 percent. For men over 60, it can disappear altogether, the study found.

The study didn’t find any correlation with other parts of the sleep ycle: falling asleep, light sleep, or paradoxical sleep, when most dreams occur. Men in their 20s don’t have such a correlation, because their neuronal circuits are intact, the thinking goes.

“With age, there is neuronal loss and the synchronization of cerebral activity isn’t as good, which is why there is a loss of deep sleep,” Sekerovic explained. “Low levels of testosterone intensify the lack of synchronization and can explain 20 percent of men’s inability to experience deep sleep.”

Sekerovic suggests dwindling testosterone levels are what impact sleep,not vice-versa, as other studies have suggested. He adds previous investigations measured daily fluctuations in testosterone levels,which are higher in the morning.

If his findings are true, there could be  treatment options.

“The loss of deep sleep is a serious problem that could be treated with testosterone. That would be tremendous progress,” he said. “But hormone therapy can have secondary effects.Therefore, it will be essential to better understand the mechanisms leading to the loss of deep sleep.”

Other scientists have suggested, however, that older people need less sleep.

This study, announced Friday, was supervised by Julie Carrier, a professor of psychology at the University of Montreal. The findings were presented at the annual conference of the Association francophone pour le savoir (ACFAS).

By LiveScience Staff

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Beneficial Effects of Testosterone for Frailty in Older Men Are Short-Lived, Study Finds

ScienceDaily (Nov. 4, 2010) — The beneficial effects of six months of testosterone treatment on muscle mass, strength and quality of life in frail elderly men are not maintained at six months post-treatment, according to a study accepted for publication in The Endocrine Society’s Journal of Clinical Endocrinology & Metabolism (JCEM).

Frailty is an age-related state of physical limitation caused by the loss of muscle mass and function and can lead to adverse clinical outcomes such as dependency, institutionalization and death. Testosterone levels naturally decline with aging and testosterone replacement is a common therapy. Short-term testosterone treatment in frail elderly men has been shown to improve muscle mass and strength, but until now it has been unclear whether these effects could be maintained post-treatment.

“Since the use of testosterone in elderly men raises concerns regarding adverse effects on the prostate and cardiovascular system, it’s important to determine if short-term treatment can lead to prolonged benefits beyond the duration of testosterone exposure,” said Frederick Wu, MD, of the University of Manchester in the United Kingdom and lead author of the study. “Our findings suggest it may not be possible to break or interrupt the cycle of decline in physical function in frailty by short-term anabolic pharmacological intervention using testosterone supplementation for six months.”

In this study, researchers evaluated 274 intermediate-frail and frail elderly men aged 65-90 years with low testosterone levels. Study participants received either a testosterone gel or placebo for six months. Assessments were carried out at baseline, the end of treatment and six months after treatment cessation. Researchers found that the increased lean body mass, muscle strength and quality of life after six months of testosterone treatment were not maintained six months after treatment.

“At present, the optimal duration of anabolic hormonal intervention to produce sustained benefits in treating frailty in older men is unknown,” said Wu. “To best interrupt the downward spiral into frailty a greater emphasis should be placed on a multi-disciplinary interventional approach including resistance exercise, diet and other lifestyle options, in conjunction with pharmacological agents.”

Other researchers working on the study include: Matthew O’Connell, Steven Roberts, Upendram Srinivas-Shankar, Abdelouahid Tajar, Judith Adams and Jackie Oldham of the University of Manchester in the United Kingdom; and Martin Connolly of the University of Auckland in New Zealand.

The article, “Do the Effects of Testosterone on Muscle Strength, Physical Function, Body Composition and Quality of Life Persist Six Months Post-treatment in Intermediate-Frail and Frail Elderly Men,” will appear in the February 2011 issue of JCEM.

Editor’s Note: This article is not intended to provide medical advice, diagnosis or treatment.

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