Calpers Dives Deeper into High Risk Investments

The reason for this, beside the typical mix of corruption and de facto kickbacks, is that without high yields there will be no money to pay the upcoming tidal wave of public sector retirees. Calpers has an unusually high investment return target of 7.75 percent, and has increased its stakes in venture capital, hedge funds, and private equity. The situation is not pretty: it hit a peak value of $260 billion in October of 2007, fell to $160 billion, and now sits at around $200 billion.

The safest 'retirement' fund is Social Security, simply because almost everyone is vested. The more specialized a fund, the more it can separated from the concerns of the general population. Calpers retirement packages can presented as the benefits of sour DMV workers (never mind police and firefighters) - i.e., someone else, which makes it politically vulnerable to deep cuts in the coming years.

1"Laying on bets at America's biggest pension fund" - Reuters; Christie, Ablan, Henderson

Irish Labor is Too Expensive

Widely reported, but Dell is in the process of moving a manufacturing plant from Limerick to Poland. Labor costs are reportedly 2/3 rds lower.

The reaction of political leaders ? Irish deputy prime minister Mary Coughlan said 'the government hoped Dell would choose Ireland for future investment, reflecting the nation's ambition to become a European hub for research and development'.

This is only what every developed and semi-developed country in the world is planning. Not an original idea in their head.

1"EU approves Poland's €55m grant to Dell for Lodz plant" - Irish Times; Smyth
2"Dell Ditching Ireland For Poland" - Huff Po

Our Future As A Financial Colony ?

So Brad de Long believes.

But he issues a caveat: "Can anything stop this progression? Yes. A collapse of world economic growth—which would create a very dangerous and angry world. Or a sudden return to thrift on the part of American consumers — so that we can finance the industrialization of the rest of the world rather than having them finance our consumption. But neither is likely."

No Jobs bill, no restraint on credit card mendacity, and a tax on 'Cadillac' health plans. Persistent high unemployment, a debased dollar, and debt peonage will cripple the U.S. consumer and force global re-balancing. A slow motion crash of the world economy.

1"Our future as a financial colony" - The Week; de Long
2"An American Savings Glut" - previous post

Why Exactly Did Hu Have to Leave the G8 ?

Thinking about the Xinjiang riots, and his abrupt departure back to Beijing.

There is no way those riots posed any systemic threat to the authority of the state. However they could have served as a pretext for political intrigue within the CCP.

CIA's In-Q-Tel Expands Influence

The CIA's venture capital fund is investing in another data crawling and monitoring operation. No details on the size of the investment.

This is as much about building relationships in Silicon Valley as it is getting information through a product. The CIA needs talent, and a lot of it is in the Valley. It's important to have a visible presence.

1"U.S. Spies Buy Stake in Firm That Monitors Blogs, Tweets" - Wired; Shachtman

The Biggest Bubble of Them All

China needs an “urgent” tightening of monetary policy to prevent the huge stimulus measures introduced this year from inflating stock and property bubbles, one of the country’s leading bankers has warned.

Qin Xiao – chairman of China Merchants Bank, the country’s sixth-biggest – says in Thursday’s Financial Times that the government should not be afraid of a “moderate slowdown” in the economy...

...Tomo Kinoshita, an economist at Nomura International, said in a report on Wednesday that China risked creating an asset bubble similar to Japan’s in the 1980s if it continued with aggressive lending at the same time as deregulating its financial markets.

1"Top China banker warns on asset bubbles" - Financial Times; Dyer

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What will be the internal reaction when the bubble collapses ? (While also noting that bubbles can go on a very long time.)

This sentence from Qin Xiao's article is interesting, in light of Wu Jinglian's recent warning about the increasing power of centralization tendencies: "However, there is growing concern, especially in China, that the temporary stimulus programme might evolve into permanent government control of the economy".

2"China must keep its eyes fixed on the exit" - Financial Times, Qin Xiao
3"'Maoists' Gaining Influence in China's Government ?" - Previous Post

Asian Central Banks at a Crossroads

Matthew Brown and Patricia Lui write: "Asian central banks are running out of ammunition to fight their currencies’ biggest rally since 1998, paving the way for South Korea, Taiwan, Indonesia, Thailand and India to help lead foreign-exchange performance next year".

Their options ? Appreciation and a collapse in export production, with a rise in unemployment. Or rapid inflation as "as they flood their economies with local currencies sold for foreign cash". This can also lead to the kind asset bubbles blowing up in coastal China.

There also might be the return of capital controls, such as Brazil recently implemented.

The simple answer would be to grow internal markets. But, as Jeffrey Frieden notes, "political economies dominated by powerful export interests face fundamental challenges to those interests, as their export orientation may no longer be sustainable".

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1"Won Crushes Yen as Dollar Substitute in Asian Rally" -Bloomberg; Brown and Lui
2"The Political Economy of Recovery and Rebalancing" - Econbrowser, Jeffrey Frieden

A Capital Strike

Zero Hedge: "Total bank reserves with the Fed hit an all time high, surpassing $1 trillion, as banks continue to hoard cash. The amount of extra lending that could have taken place but didn't was $65 billion week over week, or a $130 billion increase in just the past month."

The disconnect in the M-C-M' formulation. There is no need reason for profit-seeking organizations to lend capital if there are few opportunities for profit. In a world market glutted with capacity, it might even take the liquidation of a country or region before 'opportunities' arise. Meanwhile millions are under and unemployed.

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1"Excess Bank Reserves, Fed Balance Sheet Assets Skyrocket To Record High Levels" - Zero Hedge

Krugman Calls China, Goes All-In on Trade War

Nothing much to say. These tendencies are inevitable when capitalism goes into crisis.

Krugman:

"China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead ....

The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth...

The point is that with the world economy still in a precarious state, beggar-thy-neighbor policies by major players can’t be tolerated. Something must be done about China’s currency."

So what does Mr. Krugman propose doing ???

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1"The Chinese Disconnect" - NYT, Krugman

Introducing the Sucre

The most fundamental philosophical challenge to capitalism, neo-liberalism, and Washington's dominance is coming not from Asia, but from Latin America.

The leftist Latin American ALBA trade bloc is scheduled Friday to approve measures that would replace US dollars with a new virtual currency for regional commerce, an official said here.

Bolivian Deputy Minister of Foreign Trade Pablo Guzman told reporters that members of the Bolivarian Alternative for the Americas (ALBA) "will replace the dollar in commercial exchanges" between members with the Unified Regional Compensation System, or sucre.

The new monetary system was adopted in principle at an ALBA summit in April by organization members, which include Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Honduras, Dominica, Saint Vincent, Antigua and Barbuda.

1"Leftist Latin American bloc to stop using dollars in trade" - AFP
2"Bolivia summit adopts new currency" - Al Jazeera
3"Alba Summit to Strengthen Regional Integration" - Cuban News Agency

Trichet Sweats

Jean-Claude Trichet, president of European Central Bank:

“We never had a grand plan to promote the international role of the euro,” he said.“We always said the contrary, we said we are not campaigning for the international use of the euro.”
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"I trust that it is extremely important that the U.S authorities, the Secretary of the Treasury and the Chairman of the Fed will pursue policies that are taking into account the fact that the strong dollar is in the interest of the United States of America, and I trust them to respond very clearly."

While Airbus pressures:

"At current levels, the situation is becoming very difficult for all industrial companies that have their costs in euros,” Airbus SAS Chief Operating Officer Fabrice Bregier said in Paris on Oct. 8. “We can only appeal to monetary authorities to ensure currency stability."

No single country has the non-financial productive capacity to support the weight of a reserve currency. Yet breaking up the post-World War 2 order within the context of capitalism, means the collapse of globalization, destabilizing nation-state disputes, and possibly a replay of the events that led to world war. The gangsters in New York and Washington know this, and count on their weaker cousins to preserve the system, even as they drive the dollar into the ground.

1"Trichet Says U.S. Must Pursue ‘Strong Dollar’ Policy" - Bloomberg
2"ECB's Trichet: strong dollar comments important"- Forbes

Bernanke Warms to IMF-Style Shock Therapy For the U.S.

"Ben Bernanke said on Monday that it was "extraordinarily urgent" that the US and Asia adopt policies that prevent a revival of global economic imbalances as the financial crisis ebbs.

The Federal Reserve chairman warned that global imbalances -- the big gaps between national saving, consumption and investment rates reflected in large trade deficits and surpluses -- had helped cause the crisis and needed to be corrected." - CNN

Debasing the U.S. dollar is not primarily about increasing U.S. exports; much of these jobs are not coming back , as much because of technology as cheap overseas labor.

A larger reason for dollar debasement is to weaken the U.S. consumer and force a change in the trade balance by reducing consumption. The faction of the U.S. ruling class currently in power feels to much has been given away.

This is another reason why there is no significant jobs program in the offing, high unemployment will depress wages - helping a few domestic manufacturing industries, but also crippling consumption.

Bernanke also added"“The United States must increase its national saving rate,” he said. “The most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.”-NYT

Again, crippling the U.S. consumer and debilitating the U.S. worker by cutting entitlements and public resources.

The general tone of Bernanke's speech was one of a genteel gangster.

1"Bernanke warns on imbalance risks with Asia" - CNN
2"Bernanke Calls for Action on Trade Gap" -WSJ
3"Bernanke cautions on risks from imbalances" - UK Times
4"Asia Said to Be Leading the Globe Out of Crisis"-NYT