Monday, March 03, 2008

[sovereign wealth] the little matter of democracy

Consider Sackerson's concerns here:

So in seven years' time, sovereign funds are expected to control 12% of the market. This is significant: you'll recall that and EU countries require declarations of shareholdings at various levels between 2 and 5 per cent

My hazy understanding of democracy is that it includes two crucial elements, namely, the vote, and the right to own personal property. We're losing both.

And as for property, when sovereign wealth funds go from being the tail that wags the dog, to becoming the dog, multinational businesses will be less concerned to satisfy the local shareholder, who may also be an employee. Big MD (or Big CEO) will have his arm around the shoulders of Big Brother.

Sol Palha worries about the acquisition of Western assets by sovereign wealth funds ("Slowly but surely America and Europe are going to be owned by foreigners. The irony is that Congress is trying to keep immigrants out of this country but right in front of their eyes foreigners are slowly gobbling up huge chunks of this country.").

Sackerson's solution?

Foreign governments with trade surpluses (based on artificially low currency exchange rates and stupid overspending by the West) are building up trillions in reserves and eyeing our companies and real estate. If our own leaders aren't willing to rebalance the world economy, the least they can do is get a piece of the action.

Well, his wish has been granted:

France adopts a sovereign wealth fund model. France, like many other European countries, has stated its concerns about the growing investment appetite of sovereign wealth funds from resource-rich emerging countries for European industrial and financial companies.

But Nicolas Sarkozy, French president, seems to be behaving these days as the chairman of a sovereign wealth fund.

The French government on Wednesday acquired a 2.85 per cent stake in STMicroelectronics from Italy’s Finmeccanica to maintain the balance between French and Italian shareholders in the cross-border semiconductor venture.

And the EU can make rules about controlling these funds all they like but as Tim Worstall writes:

The sovereign wealth funds belong to the States which own them. States which, we might note, are not members of the European Union and are thus not either responsible for paying Sr. Barroso's wages nor subject to his whims.

Wherefore democracy?

18 comments:

  1. I don't think sovereign wealth funds are a such a terrible idea. When sovereign funds invest in the British economy it means that foreign governments suddenly have a strong interest in our economic prosperity and well being which seems like a good thing to me.

    The problem that countries like the oil rich Gulf states face is that the rising price of oil means that they have more money than their economy can absorb in one go so they can either fritter it away as they did during the 1970s oil boom or invest it in larger economies so that it provides them with an income far into the future.

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  2. Please remove me from your blogroll. I will not support a site that allows abusers of women to clean themselves, and spread their lies, whilst still vicitmizing the women even here !

    I hope that you feel spiritually lifted by is presence.

    Personally, when I saw his photo on your parade it was like seeing the face of my public rapist, on a blog I was consistently supporting that HE was going to'kill forever'.

    I think your white steed died.:(

    Good bye, James.

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  3. James, you seem to be struggling with something.
    Here is an offering.
    Some would say it sits on the wildly optimistic side.
    I would tend to agree with them.
    It falls seriously short on the downside of the US Economy.
    As to SWFs and democracy, I would urge you not to be infantile.
    2 points.
    1)Precious few structures are more opaque or untruthful in their financial dealings than the EU, the IMF, or the Fed
    2)The time for democratic considerations is well past, even if they were relevant. Without massive financial injections, the west, (US mainly, and to an extent the UK and EU) will collapse financially. It's a long explanation which I have no intention of getting embroiled in.

    Herewith
    Synopsis of Global Economy. 29/2/08

    Commodity prices will continue to rise in the short term until the increase in global inflation draws a response from central banks, especially in China.
    (1) Contrary to the speech given yesterday by Federal Reserve Vice-Chairman Donald Kohn, there is no reason to think that commodity prices or inflation will stabilise in the short-to-medium term. Energy and commodity prices are being driven by two factors that will ensure they are largely insulated from any slowdown in the United States:

    (a) Strong demand from China which is offsetting slower commodity consumption in the United States and (prospectively) in Western Europe.

    (b) Strong investment inflows as institutional and private investors re-allocate funds from large and liquid but underperforming equity and bond markets to small, illiquid but out-performing commodity assets, which is having an outsized impact on commodity prices.

    (2) Even as the US economy slips into recession, prices for crude oil and a range of other commodities have continued to soar, and that trend looks set to be extended. Until China’s commodity appetite slows, or investors lose their enthusiasm for commodity futures, price increases fuelling inflation will continue. Neither appears likely in the next few months.

    (3) The global economy has shifted into a period of perceptibly faster inflation. For the time being none of the major central banks appears ready to push back by raising interest rates to curb growth. In fact, interest rate reductions in the United States and United Kingdom appear designed to stimulate otherwise slumping demand.

    (4) Higher commodity-driven inflation will make bonds less attractive, and spur further allocation of investment funds into commodity futures, intensifying upward pressure on prices still further.

    Thinking about the inflation end-game: H2 2008

    (1) In a globalised economy, capacity constraints are global rather than national. The speed limit for global growth is set by the availability of adequate raw materials and transportation capacity. ottlenecks in the extractive and transportation industries drive inflation rates worldwide. It makes no sense to focus slower growth at national level in the United States and Western
    Europe leading to “slack” emerging in local labour markets and manufacturing industries if China continues to grow rapidly and put pressure on the availability of energy, mineral and port terminals. They are all drawing from the same resource “pool”. Nor does it make sense to talk about China “picking up the slack” created by a slowdown in the United States because there is no
    slack in the global economy.

    (2) The Federal Reserve, Bank of England and European Central Bank are (largely) powerless to control commodity-driven inflation within their own economies. The only way to return inflation to target levels would be to engineer deep local recessions in which massive unemployment and sharp falls in the prices of non-traded items and non-energy intensive items offset the continuing upward pressure from internationally traded energy and commodity items. This type of “shock therapy”
    remains extremely unattractive and is not under serious consideration at present. Central bankers prefer to minimise the inflation problem by suggesting it is limited to a few items or will prove short-lived in an effort to anchor expectations and prevent demands for compensatory wage increases. Like Mr Micawber, the central banks hope something will turn up to solve the problem for them.

    (3)In the short-term commodity prices and inflation will continue to accelerate. Fed Chairman Kohn has pointed to the forward price curve as a reason to think that oil and other commodity prices will stabilise near current levels, but that is probably a misunderstanding about the nature and function of forward futures prices (which are not good predictors for future spot prices).
    While Kohn hopes energy prices might be stabilising, crude oil prices for nearby months have started to settle above $100 per bbl and many in the market are now targeting $105-107 in the next few months. Copper prices are approaching the peaks set in May 2006. Primary aluminium prices have broken into new ground above $3000. Iron ore producers have secured a 70% increase from the steel industry, which is in turn busy raising the prices which it charges to its own customers to pass on the
    cost.
    (4) Until global growth slows, especially in China, either of its own accord or because the central banks start tightening monetary
    conditions to push back against inflation, commodity prices will continue to rise, and inflation will intensify.

    But various processes are already in train which suggest that the end-game for global growth, inflation and commodity prices is now starting to emerge:

    (a) As it becomes clear that inflation is persistent and worsening, it becomes increasingly difficult for central banks to ignore the problem.

    (b) Accelerating price pressures present an increasing challenge to the competitiveness of China’s exporters and its internal social stability. After boosting interest rates and raising reserve requirements through 2006 and 2007, the government switched to a system of comprehensive price controls in autumn 2007 and early 2008 to hold the inflation rate down. But the controls have bottled up rather than eliminated inflationary pressures and their effectiveness has been limited.
    Consumer prices are now rising at more than double the central bank’s target rate of 3.0%. The controls are also creating more distortions in the economy. Controlled gasoline and diesel prices have done little to encourage consumers to conserve increasingly expensive crude oil imports, and are undermining the profitability of the refining industry.
    Similarly, there is a growing contradiction between controlled electricity and domestic coal prices and the rising price for China’s coal on international markets. The coal companies’ preference for exporting rather than supplying domestic power companies played a key part in the power shortages during the recent snow and ice storms
    .
    (c)After insisting last year that the economy was not “overheating” (an emotive word in China), the government has edged closer in recent weeks to admitting that the economy is growing too fast and will have to slow. Sooner or later, the government will have to replace or complement the current system of price controls with measures to hike domestic energy prices and slow the pace of growth in the manufacturing and real estate sectors. Rising prices will probably force the government’s hand in H2 2008.



    It remains possible the housing-driven slowdown in the United States will spread to Western Europe and translate into slower growth in China as falling consumer demand in North America and Western Europe cuts the demand for China’s manufactured exports. Again the effects are most likely to make themselves felt from H2 2008.

    So far the fallout from problems in the US housing market has been limited. Homebuilding has slowed but commercial construction activity has held up well. Consumer spending has slowed but is not yet falling and business investment expenditure has remained strong.

    Exports have risen but import volumes from China and elsewhere are only down marginally. But there are good reasons to think that the full impact of the crisis has not been felt yet and will only become apparent later this year.

    Commercial construction activity is still being buoyed by orders originally placed in 2006 and early 2007 before the banking crisis broke. As those orders are completed, there are no new ones coming through to replace them, so construction volumes look set to fall as the year wears on.

    Corporate profits have started to fall which will lead to a squeeze on investment spending later in the year. And as household debt problems and default rates continue to mount, it looks likely that consumer spending will fall later in the year.

    There are good reasons to think that the full impact of the crisis will not be felt until H2 2008. Moreover, the slowdown is likely to spread to the United Kingdom and Western Europe, but only slowly. Again, the impact is likely to be more apparent in H2.


    The full impact of slower growth in North America and Western Europe on China’s growth rate will only be evident later in the year. If China’s export oriented economy started to slow in response, it would curb the appetite for raw materials and probably lower commodity prices and inflation rates worldwide.



    Bottom line:
    The global economy looks set to enter a period of stagflation throughout H1 2008 and extending into H2

    Central banks seem set to accommodate rather than push back against commodity-driven inflation. The Fed’s inaction, in particular, will also produce a further devaluation in the USD, which will add to upward pressure on prices.

    An environment characterised by stagflation and a weakening dollar is highly favourable to further increases in commodity costs. Investors will continue to favour commodities as an asset class rather than inflation-hit bonds. Commodity prices are already pushing higher across the board and look set to establish new peaks during the next few months.

    But the backdrop is likely to change in H2.
    If the slowdown spreads from the United States to Western Europe and China, commodity demand and hence prices and inflation will moderate. If not, the continued surge in prices and inflation must eventually draw a response, crucially from China.

    One way or another, the global economy has hit the limits (and gone beyond) its capacity for non-inflationary growth. Global growth (and commodity demand) will have to slow in the next six months if inflation is not to rise to levels last seen in the 1970s (undoing 25 years of progress).

    END

    As I said, I view this as being an optimistic synopsis.

    You may like to take on board
    this warning, which has also had its severity reduced

    You should also factor in
    this report which does not pull its punches

    In the "Synopsis" above, the author is only partly correct in his analysis of the reason for the rise in commodity prices.
    He omits to mention the search for better returns by, ermm, international investors, who are exiting very large bond markets and low performing equity markets, into much smaller commodity markets. The effect is therefor magnified.

    I have mentioned before that the true rate of inflation in the US, UK, etc, is anywhere between 6%, and 10%, notwithstanding the constant lies and manipulation of statistics by the respective governments. When international money can only get 5% yield by investing relatively safely, long, then better returns will be sought, since they are well aware that published statistics are blatant lies, and 5% does not approach current true inflation levels.

    The above may put a perspective on the current situation.
    It is not pretty.

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  4. ....The Federal Reserve, Bank of England and European Central Bank are (largely) powerless to control commodity-driven inflation within their own economies....

    Especially the FOMC. Notice the Libertarian Party would leave the BofE intact.

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  5. ....The only way to return inflation to target levels would be to engineer deep local recessions in which massive unemployment and sharp falls in the prices of non-traded items and non-energy intensive items offset the continuing upward pressure from internationally traded energy and commodity items....

    Precisely and thanks for bringing me up to speed - no longer infantile but boyish perhaps.

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  6. ....LEAP/E2020 wishes to remind that we are now resolutely stepping into an era with no historical precedent. Our researchers insisted on that many times in the last two years: any comparison with the previous crises of our modern economy would be fallacious. It is neither a “remake” of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis....

    This is borne out by non-economic moves as well, which a raging debate on another post illustrates. Both are tied in.

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  7. This deserves a post, Anon - there's too much here.

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  8. Notice the Libertarian Party would leave the BofE intact.

    Perhaps because they don't understand it

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  9. James, if you wish to make another post, you may wish to incorporate these thoughts that I dropped on Seans freehold recently.

    "Concerning millipedes.
    Military democracy.
    Harumph!
    And gordon and darling and balls prepare sharia compliant guilts (govt bond)issues cos they've fucked the discretionary spending power of the uk sheeple with their social engineering debts, and the major uk banks, hedge funds, and other financial bodies are solvency impaired, where else can he raise finance from to fund his never slowing kleptocratic communist financial social engineering demands? But what will the cost be?

    - Concurrent with every state and their grandmother shitting their pants about sovereign wealth fund investments in major western banks, etc, and scurrying to write rules that demand clarity of financial statements from the SWFs, when their own politicians are humping at the trough of financial corruption at the personal level, and at the UK level major clearing banks telling bare-faced lies about their provision (or non provisions) for toxic paper, and political shits listed above being barefaced liars about published inflation rates, GDP, PSBR, Off- balance sheet debts, etc, and at EU level, can't get the accounts signed off for the last 12 fucking years?
    Who are they kidding?
    The EU comes out with a set of rules for SWF investments, promoting Norwegian existing rules as being superb, and then member states come out with their own versions, most being at variance with the other member states.
    So who are the assholes? Bankrupt (financially and morally) western states holding out the begging bowl, or commodity exporting states holding massive foreign reserves, or manufacturing power-houses in SE Asia.
    Obviously the former.
    BUT "WHY" IS THE QUESTION.
    And that leads to Pandora's box.
    The last thing that came out was hope, but..... and that's a long way -- decades (if ever) away.

    Sagging short term memory?
    Never!
    If I choose not to answer a question, may be I don't think the answer will be understood. Maybe I thought millipede was spouting bullshit. (see above) You have to understand that he is a liar on this subject, - criticizing China when he is a communist (check his background, father, check the labour peer who kept his father from conscription, etc)
    It amazes me that it's taken so long for them to recognize the threat from China. But to take the military route, - they must be MAD.
    So China would invade us?, or the west?, -
    Their best export market?
    If you believe that, I've got a bridge I could sell you!
    Besides how would the UK, US fund the military expansion? We are nationally bankrupt and already taxed to the point of insurrection, and certainly to the point of GDP growth inflection.
    Do you seriously believe China would use it's foreign reserves to bail-out a failed western civilisation (because in all seriousness, THAT is what is happening) if it saw that the funds were being used to expand the military?????

    The west, particularly US and UK are hollowed out, bankrupt, dysfunctional, spiritless, dispirited, immoral, militarily over-extended societies, analogous to the fall of the roman empire, who had to invoke religion at the meeting at Nicea in order to maintain some sort of ailing, final control. That's the way we are going, and I don't see a reverse gear!
    ASK "WHY" ON THAT, AND YOU GET TO THE SAME PANDORAS BOX

    SO WHAT WAS MILLIPEDES REAL AGENDA?

    No, No, and No, the war is now economic, - control of the worlds finite resources.
    Why do you think gold, silver, platinum are all trading at record levels vs the dollar/sterling?
    Why are wheat, barley, maize, soya beans, rice, soya oil, palm oil, all trading at record levels?
    Why are certain countries (including China) banning the export of many of these commodities?
    Why are Chinese authorities and Chinese companies racing to acquire strategic share holdings in major western global mining companies, and global infrastructure companies?
    Is it because the world is exiting dollar and sterling denominated assets, and dollars and sterling, and a new commodity bubble is growing, sustained by the re-emergence of the yen carry trade, soon to be joined by the dollar carry trade, when fed interest rates go a little lower?
    Is it because China above all has realised that state continuity and survival in the coming decades will depend on access to the commodities, and that the west is economically powerless to prevent these moves?

    Or has somebody got the prayer mat facing the wrong direction?

    An economic war needs an economic response, but we're fresh out of economic bullets. All we've got is the begging bowl.

    Why would China attack? She can win, if win is what she wants, (and I doubt she wants to "win" in western terms anyway), when she can succeed by doing what she does so admirably now!

    Honestly, the ordinary person in the street has more brains in his pecker than millipede and his advisers will ever have.

    Inexorable fall of $, £ in terms of Asian currencies. All we do is pass paper around, and think we are productive. Step one is execute the current crop of politicians.

    And now I see sarkozee, and bent mandelson agreeing a deal for blair to get the top EU job! corruption!

    That was on Seans real estate

    Now I will add a final thought.

    We are currently fighting a proxy war in Afghanistan.It is being glorified in the MSM because of royal involvement, and strings of national pride are being jerked.
    We are sending our youngest and bravest to fight a nebulous enemy, indoctrinated by Saudi petro-funds, our funds. If our forces are injured or maimed, through lack of equipment, since MOD seems to spend as much on leather chairs, desks, and wall hanging art-work, as it does on the hard end, they will be treated in sub-standard NHS ghettos, and fobbed of with compensation equivalent to a typist with finger stress syndrome!!
    The self same Saudis are funding (sometimes indirectly), hezbullah, hamas, iraqi insurgents, al Qeda, thousands of wahabbi learning centres globally, and gawd knows what else. They were the main contributors to 9/11, unless you go with the conspiracies.
    At the same time, since before thatcher days we have been providing advance weaponry to these same princes, and backhanding them to the tune, to date, of probably billions. Blair has squashed one inquiry, who will squash the current?

    In geologic and mining circles, Afghanistan is regarded as Nirvana It is brimming with all the resources that we currently are competing for.

    So tell me, are the actions of our politicians and our military the actions of logical, or even intelligent, sane persons?

    We are fighting the WRONG enemy, but, and heres the rub, we are fighting ON THEIR TERMS, in the fucking trenches. And we've recently taken to glorifying the dead instead of vilifying the politicians and military commanders who are in fact guilty of murder by proxy of THEIR OWN PEOPLE.

    Meanwhile, in another corner of Afghanistan, the Chinese are building roads, railways, schools, hospitals, houses, and monstrous mines, and employing hundreds, and soon to be thousands of the indigenes.
    This will instantly remove the imperative for their adherence to the stone-age-death-cult of Saudi conditioning, and over the years, create a (more or less) civil society. Something bombs and bullets and dead bodies will never do.

    So, I ask again, are the actions of our politicians and military leaders the actions of logical, intelligent, sane, human beings.
    And I will answer.

    IF THEY HAD ONE LESS BRAIN CELL BETWEEN THEM, WE'D BE WATERING THEM TWICE DAILY

    I mentioned pandoras box.
    The smoke screen for it is highly evident here.
    The MSM is keeping the sheeple well and truly sheepled.

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  10. Most certainly - a post is in the making - RL intruding at this moment today.

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  11. I have one for you, Anon:

    ГОРБУЛИНА Ирина Вячеславовна

    Check her out.

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  12. My, oh my.
    Black leather, (true?) blond.
    Power dressing Irina V.

    Is she a figure-head, or is she for-real in the organisation?

    You know her? :))

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  13. Let's just say our spheres intersect. She has some interesting acquaintances.

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  14. I envy you.
    Perhaps I should come over to visit?

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  15. Ubermouth- you need to check the stature books.
    Trying to get a woman to stop contacting you, is not a crime.

    Deciding that actually, you'd rather not be in contact with someone, because you actually don't like what you see, is not a crime.

    However, attempting to maintain contact with a man, by threatening to damage their blog, that IS a crime.

    ReplyDelete

Comments need a moniker of your choosing before or after ... no moniker, not posted, sorry.