I hope their petition prospers: Manila poor seek end to anti-birth control policy.
BusinessWorld begins a series with Mining site ‘under siege which focuses on a mining operation recently attacked by the NPA. In the House, Solon hits plan to allow mining firms to have militias.
Speaking of the House, Palace pacifies but critics say odds now high vs JDV even as the sons also rise: Kampi, Arroyo sons vote to oust De Venecia.
Meanwhile, Congress rushes aviation authority approval.
My column for today is Surprise! , and took its cue from my entry yesterday, as well as the headlines for today: Senate issues arrest orders; Lozada flies to London (see also Neri, Lozada keep affidavits for safety:Testimony of 2 execs also put on videotape).
The column makes reference to a couple of articles in Newsweek, first The U.S. Economy Faces the Guillotine and Goodbye to the Bulls? Fifteen key economists, policymakers and strategists weigh in on a week of volatility and economic turmoil.
My theory is that the stimulus package announced by the Palace, besides being difficult to challenge because it’s a copy of Bush’s stimulus plan, also makes perfect political sense, as it keeps Congress where the President likes it: on its knees, groveling, and keeps local officials in a groveling posture, too, extending her lease on political life and by so doing, keeping her options open while narrowing those of her critics. Its a big injection of political steroids.
Yet Salceda’s ostensible economic assumption is that a one year, one-time-only special appropriation of this short, will be in keeping with a US Recession that might be sharp, but not protracted, either.
Interesting to me is Alex Magno’s almost groveling appeal (in his column, today, “Counter-cylical”), addressed to no one specifically but you know it’s meant to catch the eye of the President, where basically he twits her subsidizing electricity rates for the purposes of her election campaign in 2004. He reminds her of the costs of electioneering because he thinks the Salceda stimulus package is simply a bad, irresponsible, idea:
A similar stimulus package has been proposed by one of President Arroyo’s economic advisers. This package involves giving out tax and electricity discounts, among other measures. This package, according to a statement coming out of the Palace, will cost about P75 billion.
There might be some convincing arguments about the “counter-cyclical” merits of such a spending package. But the magnitude proposed implies that we will not meet our promised balanced budget target this year.
As things stand, there is enough anxiety about the fact that the major items of privatization will run out this year. After that, we might not be able to meet our revenue targets due to slow progress in tax collection efficiency. If we give out tax discounts, the whole edifice of fiscal discipline could collapse on our heads.
We have already reduced tariff on imported oil to appease the populist mob. Some politicians, enslaved by their ambitions, have begun talking about taking the VAT out of fuel products. The opportunistic leftist groups are calling for fuel to be subsidized. That will produce a huge deficit that will cause everything else to go awry: the deficit, the inflation rate, the confidence of investors, the strength of our currency.
The net result will be an economy in chaos, with unemployment and poverty rising instead of falling. Investments will slow down, stagnation will set in. We will all end up more miserable that ever.
Before the 2004 elections, government decided to under-price electricity rates. That did not make consumers happy but it kept them from becoming too angry. The Napocor, however, was left holding the bag. It took large losses that required large borrowings.
Please, let’s not do that again. Our utilities are now profitable. As such, it is easier to push forward privatization.
Let’s not put political convenience ahead of fiscal sanity.
There is enough spending involved in the infrastructure program to provide counter-cyclical relief. Anything beyond that requires some hard thinking that looks long into the future.
The irresponsibility of past governments was that, due to political expediency, they spent garrulously and borrowed heavily, putting future generations in hock. They condemned us to a debt crisis that hobbled our ability to grow.
Let’s not do that again.
But what if she does, because the whole thing seems so “win-win”?
Not that Salceda’s alone: see Badawi’s State Of Euphoria, which argues Malaysia’s leader is being unduly optimistic about his country’s economy being immune to a downturn in the US. For the Philippines, Philippines Without Borders is fairly non-committal, in large part because he says we’ll need official government statistics, not yet fully released, to see how we did in 2007 and in what shape we’re going to face 2008.
Even as Salceda’s chirpy view is the official one, The Financial Times reports that US slowdown deals surprise blow to Canon. And that FBI in subprime crackdown In the same paper, Robert Reich says America’s middle classes are no longer coping:
The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.
The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 — from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.
But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma tele vision sets, new appliances, vacations.
With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.
But this final coping mechanism can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. As Moody’s reported recently, defaults on home equity loans have surged to the highest level this decade. Car and credit card debt is next. Personal bankruptcies rose 48 per cent in first half of 2007, probably even more in the second half, which means a wave of defaults on consumer loans. Meanwhile, as foreigners begin shifting out of dollars, we will no longer have access to cheap foreign goods and services.
In short, the anxiety gripping the middle class is not simply a product of the current economic slowdown. The underlying problem began around 1970.
The Economist , in It’s rough out there, is more reserved in stating the extent of the fallout, so far, but is quite obviously concerned that Central Banks will have to be very prudent in handling policy henceforth: if Central Banks get spooked, they can turn predictions of economic disaster into sudden reality:
Across the globe, more than $5 trillion has disappeared from the value of public companies in the first three weeks of January. Many markets are 20% or more below their highs, the informal definition of a bear market. On January 21st share prices plunged from Brazil to Britain in the worst day of trading since September 11th 2001.
Although America’s exchanges were closed that day, its policymakers’ response was more than commensurate. Before Wall Street opened on January 22nd the Federal Reserve announced an unscheduled rate cut of three-quarters of a percentage point, to 3.5%, its fastest easing in a quarter of a century. A day later the New York insurance regulator and leading banks began work on a multi-billion-dollar plan to rescue the country’s teetering bond insurers. As the markets pitch and yaw the pressing question is whether central bankers and regulators have acted with swift prudence, or ill-judged panic…
Rather than chasing the market’s tail, the Fed ought to be asking what the markets’ fall really signals. The answer is: unsurprising judgments that should not have led it to panic…
…For much of last year, stockmarkets ignored the bad news from the credit markets, thanks to three assumptions. First, that policymakers, led by the Fed, would avert recession in the United States. Second, that even if America stumbled, the rest of the world economy was “decoupled” and would carry on growing healthily. And third, that the credit mess would be confined to areas related to subprime mortgages.
These assumptions were always over-optimistic. America’s economy has stalled as the building bust deepens and consumers cope with the triple whammy of falling house prices, tighter credit and dearer oil. The labour market is weakening at a pace that has in the past heralded recession. The rest of the world, meanwhile, is slowing. Europe’s outlook has darkened. Its banks are embroiled in the credit crisis; and one of them, Société Générale, has lost €4.9 billion ($7.1 billion) in a fraud. Japan is weak; even turbo-charged China may cool.
And the credit crisis has continued to spread. Corporate lending and parts of consumer credit, such as credit cards and car loans, are wobbly. The looming downgrades–and possible bankruptcies–of the “monoline” insurers of some $2.4 trillion of bonds boded worse until Mr Dinallo moved. They would have hurt states and municipalities that are their biggest customers; and banks that had bought insurance in credit-derivative trades would also have been hit. A further round of losses at the banks could have been catastrophic. With the system at risk, no wonder stockmarkets swooned…
As to decoupling, although the rest of the world remains somewhat vulnerable to America’s troubles, most rich economies are in a slightly better shape than the United States, and most emerging ones are better able to withstand an American downturn than they were (see article). Many have plenty of reserves and flexible exchange rates, making a rerun of the 1997-98 crises unlikely. Many are growing nicely on the back of rising domestic demand and regional trade links. And many have strong budget positions, leaving room for fiscal loosening to offset weakening exports.
American policymakers also have tools to cushion–if not forestall–the downturn…
Taken together, the signs from the world economy are troubling. The credit binge will not unwind quickly or gently. Asset prices will fall. But central bankers and regulators have the tools to stop a downturn from becoming a slump, so long as they use them sensibly. Reacting to market panic with panicky rate cuts is likely to make things worse rather than better. The Fed should always be the calm centre of a financial storm.
Just the other night, a friend working for a multinational company focused on the parts-sourcing industry has begun to talk quietly (so as not to spook staff) of a slow but measurable decrease in ad placements. These are the first signs that with shrinking consumer demand in America, interest and orders for parts produced in Asia are gradually being affected; this affects, in turn, the industries that form the parts-sourcing economic foodchain, from the copywriters, editors of trade magazines, to those who put together supplier’s roadshows and conventions, etc. This situation came to mind upon reading this Economist article, Hard sell: Ad-spending usually plunges when economic growth slows. Will it be any different this time?
Similar thoughts were expressed by some people from an outsourcing company I talked to last Saturday, who briefly described the various scenarios their bosses are playing out, to see if an economic slowdown will have serious effects on the whole company, or its various parts, only.
Clearly, times have changed. The dollar–along with America’s economic place in the world–has been on a well-documented downward spiral since 2002. Back then, a euro was worth 86 cents. Today, it buys $1.46. Of course, the euro’s relative youth makes talk of “historic lows” easy to dismiss. More telling is that the U.S. Dollar Index, a futures contract reflecting the dollar’s strength against six other major trading currencies, hit the lowest mark in its 35-year history just before Christmas.
The shift will of course have major ramifications. Countries are beginning to de-link their currencies from the dollar, as inflationary pressures make it difficult to implement effective local monetary policy. Large global creditors like the Chinese have announced their intent to scale back on dollar reserves. European Central Bank head Jean-Claude Trichet is grousing about “brutal” movements in the dollar-euro exchange rate slashing profits at Europe’s biggest firms. Just last week, Airbus CEO Tom Enders warned that a weak dollar threatened the long-term existence of the Continental aerospace giant. Japan’s new Prime Minister Yasuo Fukada worries that the plunging greenback will bring back deflation. And OPEC is studying the possibility of pricing oil in euros–a move that would not only amount to a vote of no confidence from some of America’s largest creditors, but would also make energy much more expensive for the United States, compounding the economic troubles which led to a weak dollar in the first place.
Venuezuelan president and Bush-basher Hugo Chávez recently gloated, “The empire of the dollar is crumbling.” But that’s not quite right. The majority of the world’s financial assets and central bank reserves are still held in dollars. It will take years for the euro to become a real rival; the renminbi will rise over decades. Still, what’s clear is that we have entered a new era. The United States can no longer rule the world on credit.
The blog Uniffors tackled the absence of the President’s husband who was in Switzerland for “bonding and other personal reasons.” The irrepressible blogger then observed,
Malicious minds concluded immediately that the Pidal brothers were checking on their bonds, hopefully not notes invested in sub-prime funds.
The Pidal brothers will come home soon because Jun Lozada is not going to testify on the ZTE-NBN deal anymore.
Lozada is the reason why the Pidals stayed away. If Lozada had testified and dropped a bombshell even bigger than “BACK OFF!” and “Putanginang Abalos yan sinabi pa kay Mike na may $70 million siya ….”, the Pidals would have stayed away until the whole thing blew over, no matter how long it took.
If Lozada had testified, what would the Palace have done to kill the story?
Estrada has been pardoned. Who will they pardon next, Trillanes, Lim, and Querubin? All together or one at a time?
Or maybe Gloria Security Adviser Bert Gonzalez, formerly of Light a Fire Movement, will send out teams of pyromaniacs to identify methane-filled shopping mall basements all over Metro Manila.
The most likely headline grabber, I think, is unseating Speaker De Venecia. It’s been simmering for days. The Palace could have ordered it at any time but why waste a weapon of mass distraction?
Why shake the tree if plans aren’t ripe yet.
Interesting reading, too, in Global Complications for Sovereign Wealth Funds: countries like Singapore, which administer enormous state portfolios, are facing demands from the Western countries they invest in, to make the manner in which these national funds are administered, more transparent.
And a nifty read in Why Caroline Backed Obama:
One intriguing element of Obama’s family history that resonated with Caroline was a long-buried story that was brought to her attention last summer. It drove home for her how history replays itself, how two generations of two families–separated by distance, culture and wealth–can intersect in strange and wonderful ways, and how people have no idea that their good deeds may come back to them someday.
Two weeks after he was nominated for president in July 1960, then-Senator Kennedy received a visit at his vacation home in Hyannis Port, Mass., from a Kenyan educator, Tom Mboya, who told him that more than 200 African students had received scholarships to American universities through the African-American Students Foundation but did not have the $100,000 for air transport. Despite efforts by Vice President Nixon (whom JFK would face in the November election), the Eisenhower State Department would not pay for what was described as “the African airlift.”
With only weeks to go before the school year began, Kennedy quietly tapped his family’s Kennedy Foundation, which agreed to raise the necessary funds privately. Upon learning this Nixon, seeking black votes, quickly convinced the State Department to reverse itself and offer the money, then arranged for one of his best-known African-American supporters, retired Brooklyn Dodgers star Jackie Robinson, to write a newspaper column praising him for coming to the aid of the African students.
But Nixon didn’t stop there. Sen. Hugh Scott, who headed Nixon’s campaign “truth squad,” took to the Senate floor to denounce JFK for “plucking this project away from the U.S. government” in a “misuse of tax-exempt foundation money for blatant political purposes.” Kennedy replied that this was “the most unfair, distorted and malignant attack I have heard in 14 years in politics.”
When the truth finally emerged, Robinson wrote a column saying, “I don’t mind admitting it–I was wrong.” The airlift money came through from the Kennedy Foundation, and the students arrived. Barack Obama Sr. went to the University of Hawaii, where he met and married a young white woman from Kansas.
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Their son, born the following year, arrived in the United States Senate in early 2005 and found that the antique desk he had been assigned on the Senate floor had once belonged to JFK, whose initials were carved inside. Obama learned only recently how his father’s dream of studying in the United States had been fulfilled. A “young senator from Massachusetts” made an effort, Obama told the crowd at American University. “And because he did, I stand before you today.”