Category: Current Affairs
Today is groundbreaking day for Nicaragua’s canal with China
Nicaragua plans to begin building access roads and highways on Monday near the country’s Pacific coast as it starts work on a $50 billion inter-oceanic canal meant to rival Panama’s century-old waterway.
…At an estimated cost more than four times the size of Nicaragua’s $11 billion economy, the project has raised doubts among analysts who point to HKND’s lack of experience in major infrastructure projects and question the need for another Central American canal. Panama is planning to complete a $5.25 billion expansion of its waterway next year.
“I think there is some skepticism about it getting built and getting built on time and on budget,” said Lee Klaskow, a marine shipping analyst with Bloomberg Intelligence. “There are a bunch of active volcanoes in and around the area.”
Nicaragua’s canal would also require higher locks than Panama’s since it is 20 feet more above sea level he said.
There is more from Bloomberg here. Here is further coverage:
No feasibility study, environmental-impact report, business case or financing plan has yet been released. Instead come platitudes from the Sandinista government of Daniel Ortega about how it will bring a jobs bonanza and end poverty.
So far, it has brought as much fear as hope. Since Chinese-speaking surveyors, backed by Nicaraguan soldiers and police, began assessing land and houses along the canal’s proposed 278km (172-mile) route a few months ago (see map), peasants fearful of their land being expropriated have taken to the streets 16 times. On December 10th several thousand, shouting “We don’t want the Chinese”, protested in Managua, the capital, despite police efforts to keep them in their villages, activists say. Boatmen in Punta Gorda on the Caribbean coast have refused to ferry heavy machinery to be used to begin construction, fearing their livelihoods will be harmed.
Maybe the equilibrium here is “start first, plan later” — what does that imply about the nature of the underlying game? We’re going to see how good that vaunted Chinese soft power really is.
What is going on with Greek debt right now?
From Paul Mason, here is the summary bit:
So a worst-case scenario under a Syriza victory is: short-term repayment crisis, botched negotiations with the EU, social upheaval, capital flight and default.
A best-case scenario – for Syriza – would see its EU allies force a long-term debt deal, but it would have to ride out and tactically manoeuvre on the 2015 debt repayments, as suggested above, and there would still be massive social upheaval.
Most of the post is more detailed, and considers possible debt scenarios, clear and useful throughout, a good way to get up to speed on the Greek situation again.
How are Americans portrayed in North Korean films?
There is a good interview with Paul Fischer, who has studied this and related topics, here is one bit:
The way Americans are shown is equally counterfactual. There’s a long-running film franchise in North Korea that Kim Jong-il started called — depending on how you translate — Unknown Heroes or Unsung Heroes. It’s all about undercover spies, and the villains in every single one of them are dastardly Americans with bad hair and plans to kill children or poison people with AIDS. So there’s a sense in which the anger about The Interview being offensive to North Koreans is a little bit of the pot calling the kettle black. One of the weird things about The Interview situation is that in real life Kim Jong-un is this short, fat young guy who’s running a failed, bankrupt irrelevant state. I haven’t seen The Interview, of course, but from the trailers they make Kim Jong-un look like this broad-shouldered, badass cigar-smoking leader of an awesomely dangerous state. It’s actually a flattering portrayal. But it’s like with any kind of bully: They don’t get the joke. The fact that the joke exists is threatening.
There is a video example of Americans in North Korean film at the link. This is interesting too:
The country found The Interview‘s portrayal of Kim Jong-un to be hugely offensive. Are the Kims ever portrayed by actors in North Korea?
I believe there’s one film biography of Kim Il-sung — called either The Sun of Korea or The Star of Korea — where he’s played by an actor. Allegedly, this was a guy who they brought in and gave plastic surgery to so that he looked like Kim Il-sung and then, when they were done with him, they sent him off to the concentration camps. That’s the only time, because the thinking was, How do you have a guy play god? How do you paint god? So, with the Interview, the idea that there was an American playing the great leader, and playing him for laughs, and getting killed at the end — that just couldn’t be allowed.
(Understated) claims about Russia
Here is a new research paper by Voskobvoynikov and Solanko, but dating before the collapse in oil prices:
Based on newly available data, we argue that multifactor productivity increases over the period 1995-2008 generated only about a half of Russia’s GDP growth, a smaller increase than most previous estimates. Further, growth in multifactor productivity seems to have contributed to a smaller share of GDP growth in 2003-2008 than in the first seven years of our observation period. These results imply that increases in capital inputs, and consequently investments in fixed capital, are more important than previously thought for Russia’s economic growth. Detailed analysis of industry-level data reveals two drivers of economic growth in the period: the extended oil & gas sector and high-skill-intensive services. Our analysis indicates that growth in the extended oil & gas sector reflected increased capital inputs, while growth in high-skill-intensive services seems to be part of catching up with more advanced markets. Neither sector is likely to spur growth in the coming decade.
The paper itself is here, via www.bookforum.com.
How bad are currency mismatches these days?
The words of Gillian Tett are worth a ponder:
…corporate leverage in regions such as Asia is considerably higher today, relative to gross domestic product, than it was before the 1998 Asian financial crisis, as Frank Neumann of HSBC notes. What is even more alarming is that these numbers might understate the risk since many emerging market companies have been using offshore vehicles to raise funds — and those flows are not well tracked.
The BIS reckons that about half of the debt securities sold between 2009 and 2013 by emerging market entities, along with a large chunk of loans, were channelled via offshore entities, not onshore parent companies. These offshore entities typically swap this money from dollars into domestic currency and repatriate it to the head office.
Brazilian, Russian and Chinese firms, for example, are thought to have created some $35bn of these internal intra-company flows in the first quarter of 2013 alone. But these flows are often recorded in the data as a “foreign direct investment flow”, not debt. The risk, then, is that companies are exposed to currency mismatches that will only become clear at a later date.
The full FT article is here. Here is a related article, focusing on Claudio Borio. Here are Borio and Hyum Shin from the BIS.
Taxing the safe haven demand
Switzerland is introducing a negative interest rate on the deposits it holds for lenders, its central bank said on Thursday, moving to hold down the value of the Swiss franc amid the turmoil in global currency markets.
The Swiss National Bank said in a statement from Zurich that it would begin charging banks 0.25 percent on bank deposits exceeding a certain threshold.
There is more here. Here is the market reaction.
The culture that is Dutch
This cracks me up:
The illustrations on the banknotes show generic examples of architectural styles such as renaissance and baroque rather than real bridges from a particular member state, which could have aroused envy among other countries. “The European Bank didn’t want to use real bridges so I thought it would be funny to claim the bridges and make them real,” Stam told Dezeen.
The article headline is “Fictional bridges on Euro banknotes constructed in the Netherlands.” Perhaps this will prove a broader and subtle metaphor for making the eurozone actually work…
For the pointer I thank Joel Cazares.
From the archives, on Cuba
Here is a Cuban joke which we hope will become obsolete:
One Cuban young woman complains to another. “He lied to me! He told me that he was a luggage handler! It turns out, he’s nothing but a neurosurgeon!”
Here are many other Cuba posts from MR, interesting throughout!
The Russian ruble
As Russia has deployed its reserves to (so far unsuccessfully) stop the currency collapse, it has made traders betting against the ruble richer while leaving the Russian government poorer. Poorer by $80 billion, to be precise.
Paul Krugman has a good treatment of the basic theory, scroll through a few of his posts here. From Leonid Ragozin:
Many commentators were especially annoyed that the discrepancy between the ruble and other currencies means Russians are essentially barred from traveling outside the country. “So now we are under a travel ban. … They didn’t even need to introduce exit visas [like the ones people needed in Soviet times] or build an iron curtain,” Boris Yunanov, the deputy editor of the liberal New Times magazine, wrote on Facebook…
The most popular vacation spots for Russians will be hurt, they left out Goa.
Let us not forget intertemporal substitution:
Retailers had to change prices multiple times to keep up with the rouble’s fall. Shoppers, on the other hand, rushed to beat the price hikes.
The main reseller of Apple in Moscow, re:Store, saw sales two to three times higher than normal at one central branch, according to a salesman, reports Jack Farchy in Moscow.
Since then Apple has shut down on-line sales. Here are a few photos.
Kevin Drum speculates about historical parallels. Will selling gold be their next move? You can follow the very latest on Twitter.
A positive assessment of “The Xi Project” in China
From Arthur R. Kroeber, here is the summary on his economics:
This popular reading is unduly negative. Here is another that fits the facts at least as well: After a brief scare, the property market stabilized, in large measure thanks to the removal of unreasonable restrictions on house purchases, rather than an unsustainable blowout in credit growth. By the end of the year the economy was still growing at the fastest pace of any major economy (7.3 percent), although a slowdown next year seems likely given the apparent intention to constrain credit growth. In June the Politburo approved the biggest fiscal reform in 20 years, which aims to restructure troublesome local-government debts and revamp the tax structure to cut back on perverse incentives. November saw a significant opening of the capital account, as the “Hong Kong-Shanghai Stock Connect” program permitted investors in those two financial hubs to put money directly in each others’ stock markets. Partly in anticipation of this event, Chinese stocks staged a big rally in the second half of the year which made Shanghai the world’s second best performing market in 2014. And in December the People’s Bank of China released draft rules for deposit insurance, setting limits on the government’s unlimited guarantee of the financial system and setting the stage for full deposit-rate liberalization in the next year or two.
That is not exactly my view, but this is an intelligent, optimistic account of the current China. The post is interesting throughout, and most of it is not on economic issues at all: “This record is stronger than that of any other major world leader in the last two years” Recommended.
The polity that is Hyattsville (Maryland)
Hyattsville is considering a charter amendment that would lower the voting age to 16 as part of its effort to encourage more voter participation.
If adopted, the Prince George’s County city — home to 18,000 people less than a mile from the District of Columbia border — will follow Takoma Park in neighboring Montgomery County as the second municipal government in the nation to extend voting rights to minors.
There is more here.
Matt Levine on the relaxation of Dodd-Frank in the Cromnibus
…the swaps push-out rule — section 716 of Dodd-Frank, which would require banks to book their derivatives in subsidiaries that are not their insured depository institutions — may be killed as part of the new deal to fund the government. Or here is Mike Konczal arguing to preserve the rule. You don’t need me to tell you how terrible the politics (all politics) are — Why do financial regulation in an unrelated spending bill? Why rewrite financial regulation based on a draft by Citigroup lobbyists? — but let’s spend a minute on why it’s not worth caring about.
First: The rule doesn’t apply to most derivatives. Federal Deposit Insurance Corporation Vice Chairman Tom Hoenig:
“In fact, under 716, most derivatives — almost 95% — would not be pushed out of the bank. That is because interest rate swaps, foreign exchange and cleared credit derivatives can remain within the bank. In addition, derivatives that are used for hedging can remain in the bank. The main items that must be pushed out under 716 are uncleared credit default swaps (CDS), equity derivatives and commodities derivatives. These are, in relative terms, much smaller and where the greater risks and capital subsidy is most useful to these banking firms.”
[This is now Levine again.] I have my biases, but I have a hard time believing equity derivatives will bring down a bank. Uncleared CDS, I’ll grant you, has a rough track record, though the market is slowly moving away from it in general. But the big derivatives risks, by notional, were going to be allowed to remain in the depository banks anyway. “Oh but no one could be blown up on interest rate swaps,” you say, as the Fed discusses the timing of rate increases.
Second: Pushing out derivatives into non-insured subsidiaries doesn’t make them go away. Defenders of the rule cite the example of AIG, which foundered on uncleared CDS and brought down the financial system. AIG: not an insured bank! Neither was Lehman! The people arguing for the swaps push-out rules are not people who, in other contexts, would say that only insured depository banks get any government support. They’d say that “too big to fail” banks (you know: derivatives dealers) pose risks to the financial system even in their non-bank subsidiaries, risks that lead to an implicit expectation of government support beyond the explicit FDIC insurance. Here, they are right. If JPMorgan blows itself up trading CDS, that will be a problem for everyone, whether it happens in the insured bank or some uninsured subsidiary. The rule won’t stop that. The rule is (was?) fine, but it’s not worth getting upset about. This is all theater.
The link is here.
Don’t overestimate spending on elections
Binyamin Appelbaum has a new and excellent piece on this topic:
Even the 2012 presidential election, which recorded $2.6 billion in campaign spending, underperformed many forecasts. And spending has declined in each of the last two congressional elections. Candidates and other interested parties spent $3.7 billion on this year’s midterms, down from an inflation-adjusted total of $3.8 billion in 2012, which was less than the $4 billion spent in2010, according to the nonprofit Center for Responsive Politics. (These figures do not include a few hundred million dollars in unreported spending on issue ads.) In fact, spending has dropped as the economy has grown and despite a series of contests in which at least one house of Congress was plausibly at stake. “Dire warnings rang out that the decision would herald a new era in politics,” wrote Adam Bonica, a Stanford University political scientist, in a 2013 paper about the effects of Citizens United. “Three years on, there is little evidence that these predictions have come to pass.” Over the past year, Americans spent more on almonds than on selecting their representatives in Congress.
The article is here, interesting throughout. Campaign finance, of course, is one of the areas where “the Left” is most likely to take an anti-science stance.
Stock market losers of the year
A snap presidential election — and the chances of Syriza coming into power if the government fails to win enough support to push its candidate through — are all it took to push the ASE [Greek stock index] down over 10 per cent on Tuesday.
Which makes it a 27 per cent drop for the Athens bourse this year. Only the Portuguese, Nigerian, Russian (in US dollars), and Ukrainian stock markets have done worse in 2014.
From David Keohane and Joseph Cotterill in the FT, here is more. Here is one negative scenario for those of you into Greek pessimism. Here is a more sober look at what is going on in Greece, from Open Europe blog.
Which are the most undervalued economies?
The question refers to which economies are underrated or undervalued, not which economies are the strongest. (Along these lines, LBJ is probably the most overrated player in the NBA today, but he is still also probably the best.)
Last time I picked Pakistan and the Philippines, the latter was a good choice for sure, although now its reputation has caught up to the reality of ongoing rapid growth. I would say Pakistan remains up for grabs, but still the growth rate has been running about five percent, which you would hardly guess from a random episode of Homeland season four. The fiscal deficit is down from eight percent to 5.5 percent, a big step for Pakistan. The stock market has been doing quite well. I don’t wish to claim vindication there, but at the very least it does seem they were underrated a year ago or two and still today.
This year I am going to pick Sri Lanka as well, which has a growth rate of about eight percent, one of the highest in the world. The country receives a lot of bad press because of its vicious, decades-long civil war. Sri Lanka also practices censorship and has iffy democratic credentials and a potentially chaotic election coming up. That’s what helps make it underrated, but of course the war is over now.
The educational system is reasonably good relative to per capita income, English literacy is much higher than in India, and the Chinese are building a lot of infrastructure there. Its tourism potential will expand considerably (I loved the trip there I did with Yana). The poverty rate is down. Here is one overview of recent developments. Here are a variety of country reports, lots of positive features.
Still, you don’t hear so much positive about Sri Lanka these days. On economic terms, I don’t find this one such a tough call, it’s simply a sticky reputation because of the bad politics and previous history.
So my picks for most underrated, this year, are Sri Lanka and Pakistan.
Here are some of my quasi-predictions from 2012.