End of QE

Today, the Fed announced that it would end quantitative easing, a policy they enacted in order to enlarge the money supply following the recession. However, interest rates will remain low. This policy, which was enacted to help stimulate the economy and consumer spending. The policy, which has been heavily criticized, was ended due to confidence in the economic recovery. For economists such as Paul Krugman, the end of QE would likely be lamented, due to his emphasis on stimulus from the federal government through both fiscal and (in this case) monetary policy. His likely argument would be that QE has ended too soon, especially given recent economic stagnation. Also, given the middling recovery the US has gone through since the recession, another Krugman argument would be that the response at first was too mild, and should have been much more comprehensive and radical. With the end of QE, however, the government and the Fed are both trying to instill confidence in the markets and consumers that the US has made a recovery, it may be a little premature, especially given all the economic issues which are in the immediate future for the US, namely the debt and Congressional gridlock's effects on federal fiscal policy, which has become a major issue in the Obama years. While I am not a personal fan of QE, if I looked at it from the Fed's/Krugman's perspective, I would believe it is ending too early, and upcoming economic uncertainty could easily slide the US back into recession.

IMF and Bailouts

One of the main critiques of Stiglitz and his compatriots is that the reason the IMF has to be called in is the financial mismanagement of countries which require a bailout. I am personally sympathetic to this view, since the IMF, in an ideal world, would not need to exist. However, their existence is necessary due to the poor monetary situations in many nations. For example, a country such as Greece, which has poorly managed its economy for decades, needed an IMF bailout and the conditions which came with it. However, the resulting social instability, a byproduct of the bailout, was used as a criticism of the IMF. The rise of extremist political parties, such as Golden Dawn and SYRIZA, could be directly laid at the feet of the IMF. However, none of this would have happened if the Greeks did not manage their finances so poorly and lie to gain admission to the Eurozone. While IMF-imposed austerity is often characterized as unfair on the nations who are on the receiving end, they often have no one to blame but themselves. Greece may be example A, but you can point to nearly any country receiving an IMF bailout and immediately question their judgment. When persons such as Joseph Stiglitz characterize the IMF as unfair and biased, they may have legitimate points about its Western slant and often draconian impositions. However, when it comes to pointing out the reasons why these conditions of austerity, high taxes and economic restructuring needed to happen, the critics fall silent

The Sorcerer and the Stripper

Since this seemed to cause a minor stir in class the other day, I think it at least deserves some background information (plus I love Argentinian history). Juan Peron, the former dictator of Argentina is today known to most US audiences as the husband of Eva Peron, Evita, his second wife. Juan's policies, which were economically protectionist and populist, appealed to the lower classes of Argentina and organized labor, but the opposition of the conservative elites and military led to his overthrow in a coup in 1955 and Peron was exiled to Spain. Visiting Panama, he met his third wife, Isabel, who worked as a dancer in a nightclub, and brought her back to Madrid and married her. While in Madrid, she met Jose Lopez Rega, an Argentine Police corporal who had an extensive background in the occult and esoteric movements. Rega therefore gained influence over Isabel, and indirectly Juan, whose health was failing. When Juan returned to Argentina as President in 1973, the country was de facto led by Rega and Isabel, due to Juan's age and ill health. Rega himself was also connected/the leader of various right-wing death squads, and was connected to the murder of various left-wing Argentinian activists, the Montejurra Shootings in Spain, and the secret Italian Masonic Lodge, P2. So when Juan died in 1974, these two were now de jure leaders of the nation, where a civil war was being waged between the right and left, and Isabel and Rega led the right wing forces, leading to a multitude of human rights abuses, mainly through Rega's Argentine Anticommunist Alliance (AAA). However, the two proved to be totally incompetent at both waging war and managing the Argentinian economy, which led to Isabel's overthrow by a military junta, who were even more brutal at putting down the war. Rega died in an Argentinian prison in 1989, while Isabel currently lives in Madrid, and was arrested there in 2007 to be extradited back to Argentina (however this warrant was denied),

Krugman and Panics

Paul Krugman is an interesting character. While he is without a doubt a very smart economist, I personally am not a fan of him. I think his economic ideas are often too intertwined with his partisan attacks on Republican politicians, especially in his New York Times columns, but by reading the editorial page of the New York Times, I should expect that sort of thing. But I digress. In his book The Return of Depression Economics, Krugman lays out probably the biggest problem, in my opinion, about today's global economic system, which is the fear of contagion. In this chapter, which discusses the Asian crisis of the late 90s. Krugman underlines the fact that what started as Thailand poorly managing their debts and deficits, quickly spread to the rest of Southeast Asia. This economic catastrophe, which Krugman compares to the Great Depression, was abated due to the intervention of the IMF, yet it still forced Indonesian president Suharto from power. However, my point about the ills of contagion were what took place in the last few years, with the EU and the disastrous economies of Southern Europe, where debt-to-GDP was very high, the economies were too dependent on certain industries (tourism, for example), and frankly, none of these countries should have been in the Eurozone. But at the height of the crisis, the fears of a Greek exit from the Eurozone, or a Greek default, and the effects it would have on the economy were profound. Mainly, the fear was the Greek calamity would spread to either Spain or Italy, which are among the top 5 economies in the EU. Greece defaulting or leaving the Eurozone would have been bad, but not the worst thing in the 'big picture.' However, if either Spain or Italy had left or defaulted, then the Eurozone and quite possibly the entire EU would have gone bottoms up. Essentially, what I'm trying to say, and what I believe Krugman is also getting at, is in today's global economy, the main goal whenever there is an economic crisis, recession or the like, is containment. Stop the bleeding, and stop it quickly. This is exactly what the US did in 2008 with the bailouts, and the IMF did the same thing in Southeast Asia. Essentially, there is no room left anymore where people can actually allow for the free market to run its course in a major recession or depression. Sure people can talk about it, but with their backs to the wall, it likely that will never be the case again.

North Korean Uncertainty

In recent weeks, there was a large wave of speculation about the whereabouts of Kim Jong-un, the totalitarian dictator of the world's worst nation, North Korea. Kim had not been seen in public since early September, and had missed a few major events in North Korea, which led to questions about his continuing role in the state and his health. He had been rumored to be suffering from gout, obesity, fractured ankles due to the obesity, and a myriad of other illnesses. While he reappeared in the news today (albeit with a cane), it put to rest much of the extreme speculation about his health, and whether or not he'd been deposed. However, the questions about his health and status were intertwined with those relating to the role of North Korea in the 21st century, namely regarding its economy. As the economy globalizes more than it probably ever has before, namely through products such as telecommunications, social media and the like. Also, Chinese apprehension towards North Korea's bellicose attitude has increased in recent years. That, coupled with a sense that Chinese backing of North Korea is not yielding any benefits, has increased rumors of regime change and reform in North Korea, with particular emphasis on it transforming into a China-esque state-capitalist regime. However, this is pure speculation at its core, and with Kim's recent reappearance, it its likely just a result of health problems on his part. However, the question of North Korea and how long its totalitarian Stalinist dictatorship can last is one of the most important political questions today.

FDI and China

Chinese foreign direct investment, or FDI, has skyrocketed in recent years, due to their economic  boom over the last few years. However, this sort of investment has been viewed with suspicion by many Western nations, such as the United States. Chinese FDI is focused on two particular sources, namely the financial sector and natural resources. Investment in natural resources is paramount to Chinese success in order to continue as an industrializing nation. China needs oil, coal, iron and many other raw materials to continue its industrialization. Chinese FDI, especially in developing nations, often results in Chinese-built infrastructure and significant investment in these third world nations. Sub-Saharan Africa is often the recipient of this investment, which leads to American fears that China is, in effect, buying up political capital in the developing world at the expense of the United States. Financial investment is another story, since it very diversified. Hong Kong, the main site of Chinese financial investment, is currently undergoing political upheaval, which has brought a great deal of uncertainty to Chinese and foreign investors in the region, since any type of uncertainty often causes a downturn in the market. However, the main question about Chinese FDI is what are its goals? Chinese politicians, who are very closely intertwined with its business leaders, and what they hope to gain out of it. Is China attempting to gain leverage and footings within the international economy, or is the party just trying to line its own pockets?

MNC's

In today's political climate, the multi-national corporation, or MNC, is an extremely controversial topic throughout the world. In the West, MNC's are regularly derided for moving their jobs outside of their country of origin or their main corporate base in order to pay fewer taxes. If one is to take the side of the MNC's, that is due to their belief in Milton Friedman's statement that corporations owe nothing to anyone besides their shareholders. However, proponents of holding corporations to account often focus on two main issues: taxation and workers rights. Corporations will often register their businesses in nations which offer extremely low corporate taxes in order to pay less. Senator Carl Levin wrote an op-ed recently that took Apple to task for moving their corporate headquarters to Ireland from the U.S. While Levin believes that Apple is only looking to avoid taxes, they would see it as making more profits to please their investors. Also, even though Apple is a company founded in the United States, as an international company with a global reach, it does not have an absolute obligation to stay in America. However, workers rights are much more controversial, since many U.S.  companies will move their manufacturing centers to places with limited workers rights and safety precautions in order to cut down on costs, Apple and Nike being two good examples. So the question about MNC's must be asked, if they are only in it for the profits, then what is the overall cost of that to both developed and developing nations?

Occupy Central

We discussed this quite a bit in class on Tuesday, though since then it appears the protests in Hong Kong have escalated, with the protesters now demanding the resignation of the city's chief executive, Leung Chun-ying. Leung is recognized as being a Pro-Beijing politician in Hong Kong, and has also been accused of being a member of the Communist Party, despite being officially nonpartisan, If Leung does not resign, the Occupy Central movement will occupy main government buildings in the city. Also, while the movement itself is being praised throughout the Western and democratic sections of the world, the response of the Chinese government has so far been mostly an appeal to stability, with a few carefully worded and vague threats sprinkled into the official language. Another interesting dynamic is that today, October 1st, is National Day, the founding day of the People's Republic of China. It presents an interesting contradiction between the protests in Hong Kong, with its democratic legacy from British rule (Macau also has a similar system as Hong Kong, following the transfer of power from Portugal to China in 1999). One possible affect could be a spillover of these protests into Macau or mainland China, though right now that appears unlikely, though if the protests continue to grow over the next few days all bets would be off.