Blogs: Kathleen M. Packard
There is a lot of bad behavior in the global political and monetary world. Much of it comes in countries that should know better. Recep Tayyip Erdogan’s Justice and Development Party (AKP) easily won municipal electons in Turkey but the party’s candidates won far short of the nation’s votes.
The Wall Street Journal’s Joe Parkinson and Emre Peker wrote that “Erdogan, whose party secured 46% of the national vote to the CHP’s 28% can’t remain as prime minister beyond 2015 because of a party-mandated term limit,but capturing the presidency would allow him to try to extend his power until 2024.
The premier said after the vote Sunday tht he would punish groups he believes are plotting to topple the government. ‘They will pay the price,’ he said.
One obvious target those associated with U.S.-based Iman Fethullah Gulen and his followers. Another target is the central bank – which Erdogan thinks should be lowering interest rates. The Wall Street Journal noted that “Erdogan’s call to cut rates comes two months after the central bank dramatically tightened olicy to stave off a broad emerging-market selloff that sparked a 30% plunge in the lira’s value to record lows over eight months.” Economy Minister Nihat Zebekci supported Erdogan: “No prime minister or economy minister would be pleased with high rates.”
We all have rate-cut expectations. Turkey’s Central Bank has been more hawkish on interest rates. Bloomberg Businessweek reported: “Turkey’s inflation rate rose to 8.39 percent in March, accelerating for the fourth consecutive month, according to data compiled by Bloomberg.
The prime minister’s remarks “contradicted the governor’s comments in London, which were rather hawkish if anything,” StanChart’s Dauba-Pantanacce said.
But, the New York Times’ Jack Ewing and Sebnem Arsu observed that Turkey’s weakening currency will help the country’s exports. They wrote: “A rise in exports is the potential upside of a falling currency.” They noted:
So Turkey stumbles along two tracks – one political, one economic. Erdogan is attempting to straddle them.
The New York Times’ Jonathan Gilbert reported: “Argentines endured price rises of nearly 30 percent last year, according to an unofficial index published by opposition politicians; the government, which has been accused of manipulating economic data in the past, claims inflation reached only 10.9 percent in 2013. In 2014, inflation could accelerate to 45 percent, according to a recent report by J. P. Morgan in New York, approaching the annual rate of 56 percent in Venezuela, a regional ally experiencing social unrest.”
The price increases have become a wearying feature of daily life. One butcher’s store abandoned its price boards last month, improvising instead with a scrap of paper that cashiers updated daily. Women are taking their former spouses to court as they seek increases in alimony payments. Business owners wrestle with salary demands, and news channels periodically send out reporters to buy groceries with 100 pesos, about $12.70, so they can gauge the weakening buying power of the country’s highest-denomination bill.
More recently, noted the Wall Street Journal’s Ken Parks, “Argentina has added more than 100 consumer products to a controversial price control program as the government grapples with one of the highest rates of inflation in the world.
Inflation is widely thought to be more than 30% following the devaluation of the Argentine peso in January and the government's habit of financing deficits through money printing. Instead of making unpopular spending cuts to tame inflation, President Cristina Kirchner has capped prices on almost 200 basic consumer goods and almost doubled benchmark interest rates.
The government is also acting to decontrol some prices. The Economist reported that “the economy ministry has begun to send signals that it is willing to make important fiscal changes as well. On March 27th Axel Kicillof and Julio de Vido, Argentina’s ministers of economy and planning respectively, announced that the government would slash natural-gas and water subsidies by a total of 20%.
Most utility prices have been virtually frozen for the past decade. The initial aim of the subsidies—boosting recovery following Argentina’s 2001 financial collapse—was achieved long ago. According to Econométrica, a consultancy, energy subsidies have since grown to represent 4% of Argentina’s GDP, which, in turn, has pushed the 2013 fiscal deficit to 3.8% of GDP, or about $15 billion.
President Cristina Kirchner is in a bind. The decontrol will put new upward pressure on inflation. “Rising living costs will in turn make it harder for the government to rein in salary rises in negotiations with union leaders: two days after the subsidy cuts were announced, the Buenos Aires provincial government agreed an average 31% wage increase for striking teachers, having made an initial offer of 25.5% in three instalments. That threatens further to fuel inflation. Ms Fernández is gradually changing tack. But economic orthodoxy will require her to make even tougher decisions in the future.”
Years of bad economic policy making are catching up on her.
“Captain America: The Winter Soldier” is now out – just when it finally turning to spring. The movie set a record for an April release at $96 million on its opening weekend – showing that Captain America is still good box-office, at least when fighting a Soviet agent.
Chris Evans faces all the usual devilish adversaries. As Captain America, Evans is a busy superhero – what with the Avengers series where he also plays Captain America. Evans seems to have graduated from the flashier Johnny Storm, aka “Human Torch” that he played earlier in the millennium. But have no fear. Johnny will storm back onto movie screens in 2015 – with Michael B. Jordan getting all hot and bothered in Evans’ place.
Captain America in Marvel comics has been a quotable superhero. In the new movie, Nick Fury says: “S.H.I.E.L.D. takes the world as it is, not as we'd like it to be.” Captain America responds: “This isn't freedom. This is fear!”
“These are dark and desperate times,” he says in a speech to Nick Fury's Howling Commandos. “I know that some of you are afraid. It's alright. It's perfectly natural. But I want you to know that I am not. I am not afraid to die this day because what we do here is necessary. It may seem impossible, our enemies may appear to be endless, but that doesn't matter. Because there is no one else. Look at me. I believe in an idea, an idea that a single individual who has the right heart and the right mind that is consumed with a single purpose, that one man can win a war. Give that one man a group of soldiers with the same conviction, and you can change the world.”
Of course, back on ABC, “Marvel's Agents of S.H.I.E.L.D” have their own strange notion of what is right and wrong. "Let me be clear. You have no rights, no lawyer,” said Agent John Garrett on one episode. “[T]he only thing keeping Agent Coulson here from throwing you out of this plane is the very weak heartbeat of the agent downstairs. And the only incentive I have for not tearing your tongue out is that you’ll use it to answer my questions."
Regrettably for the global money system, central bankers seem to value what “works” over what is right. And of course, even superheroes know that the payment for past wrongs always comes due – no matter how often payment is deferred. The supercommissioners on the F.E.D. have decreed that the taper-down will taper-in. Places around the world that lived off the QE slosh fund are now experiencing trouble.
Where is Captain American when you need him?
France and Italy are Swimming against the tide of European austerity – while the tide of unemployment continues to swamp their efforts to shake off their economic recessions.
The Wall Street Journal reported that French President Francois “Hollande’s renewed bid to steer the European crisis response away from austerity could reopen a divide in Europe between the proponents of fiscal discipline in the north, and the countries in the south, which complain austerity has severely damaged their societies and economies.
The French president can count on Italy’s recently elected premier as an ally. Fellow socialist Matteo Renzi has presented similar tax-cutting plans to those of Mr. Hollande and called for Brussels to let his country rely on increased debt.
Labor reform is vital, however, if France and Italy are to succeed in putting their countries back to work. Another Journal article by Giada Zampano reported on unemployment in Italy: “Many university graduates under 35 years old must choose between unemployment and a job for which they are overqualified—a trend that has been aggravated in the past two years by Italy's longest recession since World War II.
Unemployment in Italy hit 13% in February, a record high, while unemployment among Italians ages 15 to 24 remained just over 42%, Italian statistics unit Istat reported Monday. In this environment, newly minted lawyers and other university graduates are working as secretaries, nannies and house cleaners.
Many of Mr. Renzi's predecessors tried to improve the job market. Mr. Renzi, who took office in February, says he is determined to advance labor reform that aims to reduce the renewal of temporary contracts and ease restrictions on long-term contracts and apprenticeships.
One problem for young Italians is that they failed to obtain the necessary skills in colleges that businesses need. Only lately are Italians turning to science and engineering as a path to employment. Prime Minister Renzi wants to cut Italy’s exorbitant employment taxes in order to stem the growth of unemployment in his country. To do that he wants to cut government spending; he’s selling luxury government cars on eBay. Renzi’s goal has been to shake up the Italian government and the Italian government’s way of spending. He faces powerful vested interests in la dolce vita.
Prime Minister Renzi still has a bit of a honeymoon, but his country’s 13% unemployment rate is about three percent higher than France’s. There, President Hollande’s honeymoon has long disappeared. His party retains a slim majority in the National Assembly – a luxury that Renzi does not have.
Both countries want to spend their way out of recession – albeit with changes in the pattern of spending and taxing. Germany, where unemployment is just 5 percent, is much less enamored by la dolce vita.
“China’s government, concerned that the economy is faltering, said it would target more spending to boost growth, but it left unanswered a question over whether monetary policy will be eased as well,” reported the Wall Street Journal. “China’s State Council....unveiled....a combination of spending moves to rev up China’s economic engine. They included additional spending on railways, upgraded housing for low-income households and tax relief for struggling small businesses.”
But there many of aspects of Chinese life that remained shrouded in smog. “At its worst, the “airpocalypse” that settled over Beijing and northern China in late February had a fine particulate matter reading 16 times the recommended upper limit, turning Beijing into a veritable smoking lounge. Satellite images, a click away on the Internet, showed a massive toxic haze. Farther south, cadmium-tainted rice has been a staple of Guangzhou’s food supply since at least 2009. The dead pigs that floated down Shanghai’s Huangpu River last year were grotesque enough to haunt citizens even in their sleep,” reported Business Week’s Elizabeth Economy.
With such scenes as a backdrop, Premier Li Keqiang suitably declared a “war on pollution” at the National People’s Congress (NPC) in early March and outlined an array of targets, policies, and campaigns to address the environmental ills. His pronouncements are just the latest attempt to stay ahead of an issue that could be a grave threat to the leadership’s credibility.
But Chinese officials also have to worry about a sluggish economy. Financial Times columnist Martin Wolf has written: “Three facts about recent economic developments seem to be quite clear.
First, if you take the official statistic at face value, China’s net wxports shrank fromo 8.8 percent of gross domestic product in 2007 to 2.6 in 2011. T his was offset by a jump in the share of investment over the same period, from 42 per cent of GDP – already extremely high – to 58 percent....
Second, linked with the rise in the share of investment was an explosin in credit and debt. According to the International Monetary Fund, by the final quarter of last year total ‘social financing’, as the Chinese authorities describe it, had reached 200 percent of GP, up from only 125 per cent before the crisis....
Third, China’s growth rate has slowed from 10 per cent or more in the past decade to about7 per cent in 2012 and 2013.
As Wolf described China’s “dilemma: ‘let the debt accumulation continue, creating bigger problems in the future; or implement rapid reform and risk a fall in investment and a bigger unplanned slowdown now.” Aware of the sloggishness of the economy, China has instituted some tax incentives for small businesses and new plans for social housing. Reuters reported: “The Chinese cabinet said after its weekly meeting that it will accelerate the construction of rail projects that have been approved, and increase the total length of lines being laid this year by 18 percent compared to 2013....The measures mark the first concrete action being taken by China this year to boost its economy, and come after Premier Li Keqiang last week sought to reassure jittery markets that Beijing was ready to provide support.”
Cautious Chinese leaders must remember that the Great Leap Forward became the Great Leap Backward into mass starvation. Central planning isn’t all it’s cracked up to be.
BY KATHLEEN M. PACKARD: