Here is an interesting profile of Nouriel Roubini.
Category: World Economy
The first week of April sees two big economic events: the April 7th Irish budget is preceded by the G20 summit on April 2nd. There is an interesting article by Simon Johnson on The Atlantic’s website: you can read it here.
Remember last spring? It seems an age ago now. The fear then was of resource scarcity: of rising oil prices, and of rising food prices, as biofuels crowded out food production and population continued to grow. Environmental worries also reflect resource scarcity, albeit of another type. Once this crisis is over, whenever that is, all these concerns will inevitably come back on the agenda, and could easily dominate it for the rest of the century.
In that context, one of the most alarming news stories, to me, of last year, was that involving Korea’s Daewoo Logistics leasing almost half of Madagascar’s arable land on a 99 year basis. Here is a pretty positive account of the deal in Time magazine. Why my alarm? Because the deal reflected the fact that
“[Food-importing countries] have lost trust in trade because of the price crisis this year,” says Joachim von Braun, director of the International Policy Food Research Institute in Washington.
Thus, from a Korean point of view,
“We want to plant corn there to ensure our food security. Food can be a weapon in this world,” said Hong Jong-wan, a manager at Daewoo. “We can either export the harvests to other countries or ship them back to Korea in case of a food crisis.”
The latter quote, taken from this FT piece, should send shivers down the spine of anyone with a sense of history. (The article also makes it clear that the agreement was far less positive for Madagascar than had at first been reported.) Markets are a political institution. The deal they represent is straightforward: if you are willing to pay the going price, then you can buy what you need. When countries start to doubt whether that deal will remain valid going forward, and in consequence act to carve out sources of supply for their own exclusive use, the geopolitical consequences can be catastrophic.
As I contemplated this story, I idly wondered what would happen if, in a decade or two, some African or Latin American country decided that it wanted to renege on such a deal which had been struck by a previous government with, say, China or India. And so it was with considerable interest that I read this from the BBC. I don’t suppose the Koreans will invade Madagascar! But one can predict that this will not be the only occasion on which such a domestic backlash occurs. Why on earth would anyone assume otherwise?
The moral is straightforward. In addition to tackling the underlying problems of resource scarcity, we need to credibly commit to keeping international markets open over the decades to come. And in order to be able to do that, governments need to get the macroeconomics right, now. Otherwise, as the example of the Great Depression shows, this will just be a taste of things to come. And that won’t just be bad news for the economy.
Official details here and here. It’s pretty much as I described yesterday and I’m no more impressed than before. In particular, it hardly takes a corporate finance expert to figure out that “The equity co-investment component of these programs has been designed to well align public and private investor interests in order to maximize the long-run value for U.S. taxpayers” is a bit of a fib. Funnily, toxic (or troubled) assets have now been renamed “legacy assets”! This terminology might be appropriate if we were dealing with newly-cleansed banks with new ownership and management. However, as I’m reminded every time I see this man’s happy smiling face, that just ain’t the case.
Details of Tim Geithner’s plans for dealing with toxic assets at US banks have been leaked: The New York Times article is here. From an Irish point of view, these plans are of interest not only as an example of how another country is dealing with its banking problems (the Minister for Finance has explicitly stated that he intends to learn from the approaches taken elsewhere before launching an Irish plan) but also because a successful resolution of the US banking problems seems like an essential ingredient in getting a world economic recovery going.