Germany

Draco, the seventh-century BC Athenian legislator from whom we get the word “draconian” replaced the system of blood feud and oral law with a harsh, but transparent, written legal code. One of the provisions of Draco’s code was that any debtor whose status was lower than that of his creditor was forced into slavery. It’s hard not to think of Draco when contemplating the current to and fro between the Greek government and the “troika” of the European Central Bank, the European Commission, and the International Monetary Fund, representing Greece’s creditors, trying to avert a sovereign default and keep Greece from leaving, or being ejected from, the European monetary union. These discussions are more properly considered a dictation of terms rather than negotiations. [click to continue…]

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Even in the midst of an ongoing Euro-zone crisis with no obvious solution in view, investors have no trouble distinguishing between one European country and another, as the yield spread between German and Greek government debt (currently 860 basis points, or 8.6 percentage points) clearly demonstrates. Why, then, are investors so amazingly dense by comparison when it comes to emerging markets? Why do they – willfully, it seems – refuse to recognize that there are huge differences between, say, Chile and Venezuela, which lumping them together into an emerging markets basket or a Latin America basket can only obscure?

Ten days ago, while the Egyptian democracy movement was still gathering steam and uncertainty abounded as to the political fate not only of Egypt but of the entire Arab world, the Financial Times reported that investors had pulled more than $7 billion out of emerging markets equity funds during the preceding week. This was the biggest withdrawal in over three years, which the FT attributed to “turmoil in the Middle East and rising food inflation [which] raised fears of economic instability.” Egypt, it said, may have been the catalyst, “but the fund outflows also reflected deeper unease about economic overheating in China, India, Brazil, and other big emerging economies.” The article went on to quote several fund managers who said that developed markets now represent greater value than emerging ones and as proof pointed out that nearly all of the $7bn lost to emerging markets had been reinvested into funds focused on the United States, Europe, and Japan. Though the magnitude of emerging market outflows and developed market inflows during the week of January 31 was the biggest so far, it was the fifth consecutive week in which investors had fled emerging markets for the relative safety of the big developed markets. Apart from political turmoil, investors apparently were spooked by rising inflation in emerging markets. The proof? Indonesia, Brazil, India, and South Korea have all raised interest rates this year. [click to continue…]

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Here is a comment (the second one I have posted) in a LinkedIn forum on the global economic crisis, in which various serious and fanciful proposals for replacing the U.S. dollar as the world’s reserve currency have been discussed. “What Will Replace the U.S. Dollar?”

Carbon emissions credits or kilowatt hours are a poor medium of exchange for the same reason that cigarettes or rare wines or tulip bulbs or even barrels of oil are: they are unstable and they have utility apart from their value as units of account. Until we have batteries capable of storing all the electricity generated and a much more efficient electric grid, a kilowatt hour produced but not consumed is lost forever. You can’t save it and use or spend it tomorrow. And because of transmission loss, a kilowatt hour generated in California is something less than a kilowatt hour when it reaches New Jersey. [click to continue…]

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I have often woken up in hotels and for a very long minute have had no idea where I am, whether it is Africa or Asia, Minsk or Madagascar, and there are seldom any visual clues to help you guess. I tend to stay in major chain hotels when I travel for business, and one Hilton hotel room looks much like any other. What they lack in local charm they often – though not always – make up for in cleanliness and internet connectivity. [click to continue…]

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