by David Steven | Jan 11, 2009 | Climate and resource scarcity, East Asia and Pacific, Global Dashboard, Global system, London Summit, North America
[youtube]http://www.youtube.com/watch?v=iRzr1QU6K1o[/youtube]
In last month’s New Atlantic, James Fallows had a fascinating interview with Gao Xiqing, Chief Investment Officer at China’s sovereign investment fund, and the man responsible for a significant chunk of China’s huge holdings of American dollars.
Gao – who Fallows dubs one of the US’s new banking overlords – thinks Americans need to learn some humility and fast.
“The simple truth today is that your economy is built on the global economy,” he says, “and it’s built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and … I won’t say kowtow [with a laugh], but at least, be nice to the countries that lend you money.”
The US should disentangle itself from expensive overseas conflicts, Gao believes, raise its diplomatic game, and – above all – tell its citizens to get saving as part of a “long-term, sustainable financial policy.”
It’s all well and good, but maybe Fallows should have pushed Gao a little harder on whether China’s own financial policy is sustainable. After all, despite recent appreciation, the yuan remains substantially under-valued against both the dollar and the euro – the main reason why the Chinese has ended up holding so much Western debt.
Gao’s comments on the dollar are somewhat contradictory (and reflect all the ambiguity of China’s own dollar position). On the one hand, it defends its status as a reserve currency. The US is still the most viable and predictable market, he says. But on the other, Chinese investment in the dollar is widely unpopular at home. According to Gao, China’s citizens ‘hate’ its support of rich Americans (“people eating shark fins”) at the expense of “poor [Chinese] people eating porridge.”
More significant than public pressure, perhaps, is Gao’s belief that the dollar is highly likely to lose value over the short to medium term (with a corresponding appreciation for the yuan). This will wipe billions of Chinese reserves (reserves that have only been built up through consumption foregone) – while challenging China’s export-led growth model:
We are not quite at the bottom yet. Because we don’t really know what’s going to happen next. Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was at the time of the interview.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors.
But after a short while, the dollar may be going down again. I’d like to bet on that! The overall financial situation in the U.S. is changing, and that’s what we don’t know about. It’s going to be changed fundamentally in many ways.
Unravelling these imbalances seems certain to be ugly. Reading George Cooper’s book, The Origin of Financial Crises, on a plane the other day, I was struck by strong parallels between today’s economic woes, and a crisis we have heard little about recently – the ‘Nixon Shock’ that led to the end of the Bretton Woods system. (more…)
by Alex Evans | Jan 11, 2009 | Conflict and security, Middle East and North Africa
“Israel’s current assault on the Gaza Strip cannot be justified by self-defense. Rather, it involves serious violations of international law, including war crimes. Senior Israeli political and military leaders may bear personal liability for their offenses, and they could be prosecuted by an international tribunal, or by nations practicing universal jurisdiction over grave international crimes. Hamas fighters have also violated the laws of warfare, but their misdeeds do not justify Israel’s acts.”
The Guardian? The Independent? No, actually – it’s from an op-ed by a law professor in the Wall Street Journal. When the WSJ of all papers starts running opinion pieces accusing Israel of war crimes, you start to think that Israel’s bleeding international legitimacy has started outright haemorrhaging.
Then you see even the Bush Administration declining to veto Security Council Resolutions against Israel – and you know for sure.
by David Steven | Jan 10, 2009 | Global system, North America
Optimism is in short supply at the moment, so I was psyched to read that Larry Kudlow – the National Review’s economics editor and (in his owns words) “a renowned free market, supply-side economist armed with knowledge, vision, and integrity acquired over a storied career spanning three decades” – has read the tea leaves and seen clear signs that the US economy is now bottoming out from a recession that hasn’t been “that big a deal”.
Phew. We can all stop worrying then. After all Kudlow’s stunning track record proves he really has his finger on the pulse of US economic performance. Let’s review some of the highlights from his analysis over the past couple of years:
Feb 2007: Praises Ben Bernanke for “laying the groundwork for what is virtually a runaway bull market” – one he assures us a few months’ later has guaranteed the US’s role at the epicentre of a “a global boom, marked by a spread of free-market capitalism like we’ve never seen before.”
Sept 2007: Warns us that “it’s very easy to be totally pessimistic and bearish right now, but that’s precisely why I will avoid falling into that trap. Optimists are winners. Pessimists are losers.”
Sticks to this creed throughout the quarter in which the recession got underway… October (“if things are so bad, why are they so good?”), when he says growth is accelerating…November (subprime is “just not that big a deal”)…and December (“the prophets of recessionary doom…have been proven wrong once again”)
In Feb and March 2008, admits that a mild recession is possible, but assures us that “Bernanke’s emergency machinations to fight the recession in housing and housing-related credit are starting to show very positive effects.” There is no “genuine, across-the-board credit crunch,” he tell us in April. As a result, any slump “could be over by late summer.”
In September (with summer a memory and the economic clouds darkening), swoons for Henry Paulson who has embraced the gales of creative destruction and promised “no more federal bailouts. Not for Lehman Brothers. Not for global insurer AIG.”
Three days later, however, swoons for Paulson again, this time for preventing what would have been an “unfathomable” – an AIG collapse. Bailouts, it turns out, are a simply wonderful idea – not only will they save capitalism from doom; for taxpayers they’re a “win-win-win-win.” The government is sure to get its money back – even better it’s highly likely to make “a handsome profit” – enough to “pay down the national debt.”
October 2008: Is appalled by the “fear and panic” that have gripped the economy. “It is one of those moments in history when people feel helpless, frustrated, and bewildered about what’s going on and why it’s happening.” But still assures us that “much good may ultimately come of this terrifying correction.”
November 2008: Is cock-a-hoop at the “economic-primer” George Bush has left for his successor-elect Barack Obama, who apparently now has “an outsized responsibility [eh?] to mend and revive the economy.” Obama needs to access Bush’s wisdom and follow his economic-growth model, one “that has worked so well and so long for this country.”
Yes – that’s right. Bush (“the top economic forecaster in the country”) and his administration have left the US poised for recovery. If it all goes wrong, we’ll all know who to blame – that “extremely liberal-left” guy who is just about to take over. But as long as the new President tries to do what Bush would have done, then everything – my friends – will be alright.
by Alex Evans | Jan 9, 2009 | Cooperation and coherence, Economics and development, Influence and networks, London Summit, UK
While everyone else is amusing themselves speculating about Obama’s picks for his Cabinet, here in New York everyone’s focused on a different question: what it all means for senior posts in multilateral agencies.
Start with the one thing we know for sure (as of yesterday): Kemal Dervis is leaving his post at the helm of the UN Development Programme, citing personal and family reasons. By and large most people think this really is why he’s leaving (his family is based in DC, so an NY-based job probably isn’t much fun). But at the same time, it also hasn’t escaped notice that Dervis might also be well placed to win another senior multilateral post, should one open up. He’s an intellectual heavyweight, not least on global governance reform (at a time when the G20’s evolving role makes that especially topical) – and he has impeccable economic credentials too.
So is another multilateral post likely to open up? With Strauss Kahn now clearly out of the woods at the IMF, speculation is revolving around two posts in particular: UN Deputy Secretary-General, and World Bank President.
The DSG post is currently held by Asha-Rose Migiro of Tanzania, the third holder of the post since it was instituted in 1997. Theoretically the DSG is supposed to have a key role in bringing coherence to the UN’s development activities, but in practice the current postholder is generally regarded as having underwhelmed. With everyone wondering just how robust Obama’s commitment to multilateralism will prove to be in office, some are speculating that this would be a good moment for Ban Ki-moon to shake up his top team – and with Migiro’s post soon due up for renewal anyway, a new face in the DSG’s office might be just the ticket.
Bob Zoellick, meanwhile, has been terrific for the World Bank. He’s been outstanding on the food price crisis (not least thanks to his alliance with WFP head Josette Sheeran, another former State Dept minister under Condi Rice), incredibly thoughtful on multilateral reform and he has brought calm to the institution after all of the Wolfowitz shock therapy. So why might he leave?
In a nutshell, because of the new Administration. To be sure, Zoellick is greatly respected by Republicans and Democrats alike; and there’s no precedent that a World Bank President (to date, always an American, though this convention may be crumbling) must leave when an Administration of a different political stripe arrives. But another precedent, one that may worry Zoellick, is that a World Bank President in such a situation can find himself eclipsed to some degree by the arrival of a new and powerful US Executive Director on the Board. There’s no sign of any whispering campaign against Zoellick – but he may decide that it’s a good time to move on anyway.
Kemal Dervis would be a credible candidate for either of these positions, of course – so who knows, perhaps some of this analysis features in his thinking. But there’s another angle to the story too: the UK dimension. From a British perspective, the departure of the UNDP Administrator and potentially of the DSG as well must have people at the Foreign Office and DFID thinking hard.
Historically, the UK has always had two USG posts at the UN. Until Mark Malloch Brown moved over to the SG’s office (first as chief of staff, and then as DSG), the two Brit posts were at the top jobs at UNDP and at the UN Department of Political Affairs. But when Mark became DSG, muttering about British over-representation started to be heard – and so the Foreign Office allowed an American to become head of DPA when Kieran Prendergast retired.
Today, the UK is more modestly represented. It still has two USGs, yes – John Holmes at OCHA and David Veness at Safety and Security. But these posts are rather more junior than DSG or DPA – and in any case, David Veness is leaving. (He resigned over the bombing of UN offices in Algeria – a deeply honourable action, taken simply on the basis that it happened on his watch, when in fact there’s universal agreement in the UN that Veness has been a truly outstanding head of security, who has delivered a quantum leap in the quality of UN security around the world. Ban Ki-moon was crazy to accept Veness’s resignation, but there it is.)
So with a vacancy open at UNDP, and another potentially opening up in the DSG’s office, the question in London must be wheter this is a chance to make up lost ground. Lists of senior Brits with international development experience are doubtless being compiled even now…
by Alex Evans | Jan 7, 2009 | Cooperation and coherence
Here is what happens when you arrive for a meeting at the United Nations (where David and I currently find ourselves).
Once you’re through security, you go to a reception desk in the large hall of the General Assembly building.
If you are naive enough to present yourself to one of the people behind the desk and ask for the person whom you’re due to meet, a rude awakening awaits.
Instead, you are pointed towards a small bank of telephones further along the desk, where you must phone the person you’re meeting yourself and announce your own arrival.
No, there is not a directory of staff phone numbers (duh). But let us assume that you display adaptability and have your contact’s number stored in your phone. What next?
In due course, someone will arrive from Upstairs to escort you.
Finding each other is no easy task. A number of people are waiting for meetings (this being the main reception hall for the whole UN); in addition, there are people waiting for guided tours, people using the free internet terminals, people buying special UN commemorative stamps and people looking at the nice exhibition organised by the Department of Economic and Social Affairs.
But let us assume that you manage to find each other. Together, you now move around to a new window on the reception desk.
Here, your escort will fill out a form with their details.
The person behind the desk takes your ID and scrutinises it carefully. He or she then fills in some more details on the form.
Your escort is handed a chit.
You and your escort then move another metre or so around the reception desk (for it is circular) to another window. Two uniformed security officers await you.
Your escort hands over the chit.
The first security officer warily examines the chit that their colleague (standing approximately half a metre to their left) has just issued.
Should it prove satisfactory, he or she will then fill out another chit (one assumes that there may be a degree of overlap in the respective content of the forms).
The second chit is then handed to the second security officer, who scrutinises it warily. Should it prove satisfactory, you are then awarded a special prize given to the UN’s most persistent guests: a Visitor’s Pass.
You are now back where you started before you were pointed to the phones.
Elegant, no?
