Thursday, January 19, 2012 10:07:07 AM CST
STAB a finger at the middle of a map of India and you will hit Nagpur. Some 20 miles (32 kilometres) north-west of the city is a sloping tunnel bored into the rock. Ride two miles down into the gloom, hanging from a wire, and after a torch-lit hike past underground streams and conveyor belts you arrive at a black wall. Sweating men are rigging it with tubes of explosives and wire detonators. Soon they will blast it apart, and down should tumble tonnes of India’s most important commodity: coal.In coal India has something as abundant as people. As more Indians enjoy the trappings of middle-class life and the country industrialises, demand for coal-fired electricity will continue to rise smartly, roughly in line with economic growth. India may not have much oil or gas to call its own but it has the world’s fifth-largest coal reserves. And it has successfully raised a mountain of the other raw material needed to turn carbon into sparks: capital. Some $130 billion has been ploughed into the power industry in the past five years. Of that, $60 billion or so has come from the private sector—probably the largest-ever...
Thursday, January 12, 2012 10:04:23 AM CST
THE world’s industrial supply chains were only just recovering from Japan’s earthquake and tsunami in March when a natural disaster severed them again in October. An unusually heavy monsoon season swelled rivers and overwhelmed reservoirs in northern Thailand. The floodwaters eventually reached Bangkok, causing a political crisis as residents fought over whose neighbourhoods would flood. But before that the economic toll was being felt farther north in Ayutthaya province, a manufacturing hub. The waters overwhelmed the six-metre-high dykes around the Rojana industrial estate, one of several such parks that host local- and foreign-owned factories.Honda’s workers rescued newly built cars by driving them to nearby bridges and hills. The factory ended up under two metres of water and is still closed. Honda was hardly alone: the industrial estates that radiate out from Bangkok are home to many links in the world’s automotive and technology supply chains. Western Digital, a maker of computer disk drives which has 60% of its production in Thailand, had two of its factories closed by the floods, sending the global price...
Thursday, January 5, 2012 10:00:47 AM CST
LAS VEGAS is a city of fast bucks, fast food and fast marriages. It could also be the place where a long war was declared. On January 10th Paul Otellini, the boss of Intel, will address the International Consumer Electronics Show (CES), a vast gathering of gadget-makers, sellers and aficionados in Sin City. He will introduce a phalanx of products showcasing the chips the world’s largest semiconductor company most wants to hype.Up on the stage with Mr Otellini will be not just PCs of the sort that the company has powered for decades, but also new slimline PCs known as “ultrabooks”, which are being made by the likes of Toshiba and Hewlett-Packard (HP), and even a couple of smartphones. They represent the front-line of an army of Intel-powered kit going into battle against smartphones and tablets which use processors based on designs from ARM, a British firm.Intel and ARM, pretty much as different in size and approach as competitors can be, have carved up most of the world of microprocessors—the most lucrative bit of the $313 billion global semiconductor market—between them. Each has a well defined patch in which it...
Wednesday, December 28, 2011 10:03:36 AM CST
POINT UDALL on St Croix, one of the US Virgin Islands, is a far-flung, wind-whipped spot. You cannot travel farther east without leaving the United States. Visitors can pose next to a stone sundial commemorating America’s first dawn of the third millennium. A couple named “Sigi + Ricky” have added a memento of their own, an arrowstruck heart scrawled on the perimeter wall in memory of “us”.Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America’s periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called “Modern Monetary Theory”. The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-...
Thursday, December 8, 2011 10:17:05 AM CST
“YOU’RE right, we did it,” Ben Bernanke told Milton Friedman in a speech celebrating the Nobel laureate’s 90th birthday in 2002. He was referring to Mr Friedman’s conclusion that central bankers were responsible for much of the suffering in the Depression. “But thanks to you,” the future chairman of the Federal Reserve continued, “we won’t do it again.” Nine years later Mr Bernanke’s peers are congratulating themselves for delivering on that promise. “We prevented a Great Depression,” the Bank of England’s governor, Mervyn King, told the
Daily Telegraph in March this year.The shock that hit the world economy in 2008 was on a par with that which launched the Depression. In the 12 months following the economic peak in 2008, industrial production fell by as much as it did in the first year of the Depression. Equity prices and global trade fell more. Yet this time no depression followed. Although world industrial output dropped by 13% from peak to trough in what was definitely a deep recession, it fell by nearly 40% in the 1930s. American and European unemployment rates rose to barely more...
Thursday, December 1, 2011 10:06:02 AM CST
HER $3 billion fortune makes Oprah Winfrey the wealthiest black person in America, a position she has held for years. But she is no longer the richest black person in the world. That honour now goes to Aliko Dangote, the Nigerian cement king. Critics grumble that he is too close to the country’s soiled political class. Nonetheless his $10 billion fortune is money earned, not expropriated. The Dangote Group started as a small trading outfit in 1977. It has become a pan-African conglomerate with interests in sugar and logistics, as well as construction, and it is a real business, not a kleptocratic sham.Legitimately self-made African billionaires are harbingers of hope. Though few in number, they are growing more common. They exemplify how far Africa has come and give reason to believe that its recent high growth rates may continue. The politics of the continent’s Mediterranean shore may have dominated headlines this year, but the new boom south of the Sahara will affect more lives.From Ghana in the west to Mozambique in the south, Africa’s economies are consistently growing faster than those of almost any other region of...
Thursday, November 24, 2011 3:32:56 AM CST
FIRST Greece; then Ireland and Portugal; then Italy and Spain. Month by month, the crisis in the euro area has crept from the vulnerable periphery of the currency zone towards its core, helped by denial, misdiagnosis and procrastination by the euro-zone’s policymakers. Recently Belgian and French government bonds have been in the financial markets’ bad books. Investors are even sniffy about German bonds: an auction of ten-year Bunds on November 23rd shifted only €3.6 billion-worth ($4.8 billion) of the €6 billion-worth on offer.Worse, there are signs that the euro zone’s economy is heading for recession, if it is not there already. Industrial orders in the euro zone fell by 6.4% in September, the steepest decline since the dark days of December 2008. A closely watched index of euro-zone sentiment, based on surveys of purchasing managers in manufacturing and services, is also signalling contraction, with a reading of 47.2: anything below 50 suggests activity is shrinking. The European Commission’s index of consumer confidence fell in November for the fifth month in a row.Now an even bigger calamity is looking...
Wednesday, November 16, 2011 3:48:07 PM CST
IN THE flat world of maps, sharp lines show where one country ends and another begins. The real world is more fluid. Peoples do not have borders the way that parcels of land do. They seep from place to place; they wander; they migrate.Consider the difference between China and the Chinese people. One is an enormous country in Asia. The other is a nation that spans the planet. More Chinese people live outside mainland China than French people live in France, with some to be found in almost every country. Then there are some 22m ethnic Indians scattered across every continent (the third Indian base in Antarctica will open next year). Hundreds of smaller diasporas knit together far-flung lands: the Lebanese in west Africa and Latin America, the Japanese in Brazil and Peru, the smiling Mormons who knock on your door wherever you live.Diasporas have been a part of the world for millennia. Today two changes are making them matter much more. First, they are far bigger than they were. The world has some 215m first-generation migrants, 40% more than in 1990. If migrants were a nation, they would be the world’s fifth-...
Wednesday, November 9, 2011 2:47:57 PM CST
IT IS a crisp autumn morning in Seoul, and a hopeful fisherman sits dreaming by the Cheonggyecheon stream as the world bustles happily by. Glass skyscrapers rise behind him housing the capital’s new financial district. The shopfronts at their base are among the swankiest in Asia. Office workers, families and schoolchildren amble past. Busking fills the air. The water tumbles past plum trees and willows.Twenty years ago, this background would itself have seemed a dream for anyone foolish enough to be trying to fish the Cheonggyecheon. Its waters, dirty and hidden, were trapped beneath a roaring highway; its surroundings were a slum of sweatshops, metal bashing and poverty. The reclamation of the Cheonggyecheon, one of the great urban-regeneration projects of the world, has about it the air of a dream achieved. So, to a large extent, has the Korea through which the stream flows.In 1960, in the aftermath of a devastating war, the exhausted south was one of the poorest countries in the world, with an income per head on a par with the poorest parts of Africa. By the end of 2011 it will be richer than the...
Wednesday, November 9, 2011 2:33:29 AM CST
IT IS better to travel hopefully than to arrive. For investors, the hopeful journey started in the 1980s as inflation came under control around the world. Yields came down, prices went up, a simple “buy and hold” strategy could often provide decent returns. Even boring old Treasury bonds returned 9.1% annually between 1982 and 2007, according to a Deutsche Bank study of long-term returns.At the end of such a journey, though, yields must reach a point where they can fall little if any further. And that explains much of the sorry pass at which investors have now arrived. Almost every asset class seems to be fraught with danger. Equities have suffered two bear markets in just over a decade and remain vulnerable to a rich-world recession; government bonds offer little protection against a resurgence of inflation; commodities are volatile and hostage to a possible drop in Chinese demand; property is still suffering from indigestion after the past decade’s boom.
...
Wednesday, November 2, 2011 4:18:07 PM CST
GEOLOGICAL structures of vast antiquity are more often called on to bolster the arguments of atheists than enlisted as tokens of a deity’s existence—let alone his nationality. But the deep Cretaceous salts which trap oil in rocks off Brazil’s coast are “strong evidence”, in the words of President Dilma Rousseff, “that God is Brazilian.” It is not a new conceit, but it has rarely been a more apposite one. The
pré-sal (“below the salt”) oilfields look set to generate wealth on a scale that could transform Brazil’s economy.Before the
pré-sal finds, which started in 2007, the country’s total proven and probable reserves were 20 billion barrels. Conservative estimates for the total recoverable
pré-sal oil now come in at 50 billion barrels: a little less than everything in the North Sea, all in the waters of one country. Optimists expect three times as much. “In the
pré-sal area, our exploration has a success rate of 87%, compared with a world average of 20% to 25% for the industry,” says Sergio Gabrielli, the...
Wednesday, October 26, 2011 1:18:03 PM CST
ERIC WONG, who helps run his Hong Kong family’s money through an investment office, TCG Capital, looks like a hedge-fund manager’s dream. He’s rich, young and, having been to university there, comfortable with American ways—just the type of investor that Western hedge funds looking for Asian expansion have set their sights on. He is not, however, very interested. Real estate is the “best pension plan my family ever had,” he says. Why change?Where they are not greeted with apathy, Asia-minded hedge funds often face antipathy. Since the financial crisis of the late 1990s “fund” has been a four-letter word throughout Asia. George Soros, a famous hedge-fund investor, is still reviled for aggravating and profiting from the crisis. When the Chinese refer to hedge funds as
ju e, or “big crocodiles”, it is not by way of a compliment on their killer instincts.Despite muted interest and outright scorn, though, more and more hedge-fund managers are determined to make their mark on Asia. They see a lot of money to be made, a lack of entrenched competition and a vast number of potential clients....
Wednesday, October 19, 2011 1:33:14 PM CST
AT THE end of October, after eight years in the top job, Jean-Claude Trichet will pass the presidency of the European Central Bank (ECB) to Mario Draghi. Italy’s leading central banker thus takes his place in the front row of the fight to push back the euro crisis, bearing every bit as heavy a responsibility as chancellors and presidents. Whatever plans Europe’s political leaders draw up at their summit on October 23rd, the ECB’s new head will be a vital part of their success—or failure.Mr Draghi has much in common with the Frenchman he is following. Both have had long careers in public life, including stints at their finance ministries and heading their national central banks. As chairman of the Financial Stability Board, Mr Draghi has been leading international efforts to remedy the ills of global banking. Besides his strong credentials for the job, Mr Draghi shares with Mr Trichet a pragmatic streak, a desirable characteristic when confronting a challenge as grave as the euro crisis.Not all of Mr Draghi’s background works in his favour. His brief excursion into the private sector, working at Goldman Sachs...
Thursday, October 6, 2011 4:17:49 AM CST
IT WAS always going to be a hard act to follow. On October 4th Apple staged a press conference to launch its latest iPhone and other gadgets. Tim Cook, the computing giant’s new chief executive, and his colleagues did a perfectly competent job of presenting its latest wares. But it was inevitable that comparisons would be drawn between Mr Cook’s understated approach on stage and that of Steve Jobs, his predecessor, whose sense of showmanship had turned so many Apple product launches into quasi-religious experiences. The news the following day that Mr Jobs had finally died following a long battle with cancer turned the feeling of disappointment into one of deep sadness.Many technologists have been hailed as visionaries. If anyone deserves that title it was Mr Jobs. Back in the 1970s, the notion that computers might soon become ubiquitous seemed fanciful. In those days of green-on-black displays, when floppy discs were still floppy, he was among the first to appreciate the potential that lay in the idea of selling computers to ordinary people. More recently, under his guidance, Apple went from being a company on...
Thursday, October 6, 2011 1:47:44 AM CST
“THERE is nothing sinister about this,” says the chief executive of a Portuguese drugs firm. “We have to consider: what would happen with inflation, how would we get credit, collect debts and pay our suppliers and workers?” For months he and other Portuguese bosses have been rehearsing plans for what to do if the euro zone fractures or breaks apart completely. Many firms also have formal contingency plans for a sudden exit by Portugal by itself.Such planning is not just a matter for companies in threatened economies on the periphery. Even a partial break-up would be catastrophic for companies throughout the euro zone, and pretty dire elsewhere in Europe’s single market. Like a hard punch on the jaw, it would cause painful dislocation. New currencies would have to be introduced. Panic would seize the banks on which companies depend for funding. Economic growth would hit a wall.This is not a calamity it is easy to plan for. News of a euro-zone fragmentation, if it comes, will come suddenly, like a declaration of war. Where countries leave, borders will likely be closed to prevent mass smuggling of euro...
Thursday, September 29, 2011 1:02:46 AM CST
IN 2000 Samsung started making batteries for digital gadgets. Ten years later it sold more of them than any other company in the world. In 2001 it threw resources into flat-panel televisions. Within four years it was the market leader. In 2002 the firm bet heavily on “flash” memory. The technology it delivered made the iPhone and iPad a reality, and made Samsung Apple’s biggest supplier—and now its biggest hardware competitor.The handsome payoffs from these ballsy bets made the South Korean company a colossus; last year its sales passed $135 billion. Now it is embarking on a similarly audacious plan to move away from electronics into technologies where it barely has a presence today. It intends to spend $20 billion over ten years on solar panels, light-emitting diodes (LEDs) used for lighting, electric-vehicle batteries, medical devices and biotech drugs. These businesses shift Samsung away from easily substitutable gadgets towards more essential industrial goods (see table)—or from “infotainment” to “lifecare”, as the company puts it. Just as electronics defined swathes of the 20th century, the company believes...
Thursday, September 22, 2011 3:17:52 AM CST
ASKED why he robbed banks, Willie Sutton, a hold-up artist of some accomplishment during America’s Depression, answered simply: “Because that’s where the money is.” Advanced economies that have piled up debts are eyeing their rich for similar reasons. The way to begin filling holes in the budget, many suggest, is by extracting more from those who have done best. This week Barack Obama proposed paying for new stimulus measures and deficit cuts by reforming the tax system to ensure that millionaires do not pay a lower tax rate than middle-class families.Mr Obama’s reform is based on the “Buffett rule”, so named after Warren Buffett, a folksy billionaire who publicly scorns a system that allows him to enjoy an effective tax rate that is less than his secretary’s. A growing number of the rich appear to agree. Wealthy Germans and French have signed petitions in favour of higher taxes. Luca di Montezemolo, who sells Ferraris to many of them as chairman of the Italian sports-car company, told
La Repubblica it was “right” for the rich to pay more. The broader public agrees. Even in tax-hating...
Thursday, September 15, 2011 4:17:55 AM CST
MISDIAGNOSIS is not, in itself, malpractice. Everyone, be they doctors or central bankers or politicians, makes mistakes. But when the misdiagnosis involves ignoring some symptoms and persisting in treatments that aren’t working, it is not so easily excused. And that is what is going on with the euro, where a stress on demanding austerity has eclipsed the need to boost confidence.Germany, the European Central Bank (ECB) and many others diagnose today’s mess as stemming primarily from profligacy on the periphery. “It is an indisputable fact”, Wolfgang Schäuble, Germany’s finance minister, recently wrote in the
Financial Times, that “excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare.”If profligacy is the problem, the argument goes, austerity is the solution, with public thrift serving to rebuild investor confidence. The leaders of the euro’s core countries have demanded draconian budget cuts as the price of rescue loans to troubled economies. They have pressed the Italian and Spanish governments to tighten more and faster....
Thursday, September 15, 2011 2:32:54 AM CST
THE costs of efforts to save the euro are justified by the claim that the alternative would be too dreadful to contemplate. But economic history is littered with examples of fixed exchange rates that came unfixed; the disuniting of currency unions, though rarer, happens from time to time. So how do the costs of sustaining the euro compare with the costs of its falling apart?The question does not have a simple answer. For a start, there are lots of different ways to fall apart: a wholesale dissolution into the original currencies; a fissioning into northern hard-currency and southern soft-currency blocks; or the exit of a trickle of countries, or just one. Further complexities come from the panoply of choices the departing and remaining states would make after the fall. And all this turns as much or more on law and politics as on economics.Take two specific scenarios. Germany could leave, either on its own or with a select group of small economies—Austria, Finland and the Netherlands—as recently suggested by Hans-Olaf Henkel, a former head of the Federation of German Industries. Second, and more likely,...
Thursday, September 15, 2011 2:32:51 AM CST
WHAT’S the French for “this sucker could go down”? Echoes of 2008, when the global financial system wobbled and George Bush gave his pithy view of the American economy, now resound on the other side of the Atlantic. Credit-default-swap spreads for European banks, a measure of how costly it is to buy insurance against their default, are at record highs (see chart 1).
The rates that banks charge each other for loans in the interbank market are rising, too, as they did then. Rumours swirl and panic flares: shares in BNP Paribas, a well-run French bank, dropped by 12% on the morning of September 13th following reports that no one would lend it dollars. BNP’s denials saw the shares bounce back later in the day. Shares in Société Générale, another French bank, whipsawed too. The French banks’ reliance on short-term dollar funding, which American money-...
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