Monday, June 21, 2010

Free Fallin' (Or Probably Risin')

China has finally decided to let its currency float! Kind of... The Chinese government has decided to allow small fluctuations in the value of the renminbi now that is no longer pegged to the dollar. The government has set a "reference point," and the value of the currency may appreciate or depreciate .5 percent around that point. It may not seem like much now, but it is certainly a huge step for China. Expect this quasi-float to exist at least until new economic data emerges, and the Chinese can evaluate the effectiveness of the policy. If their exports are not adversely affected, they may decided to leave this policy intact for a long time. It would not only give the government some degree of control, but it would also allow the Chinese to fight claims of currency manipulation.

There are other factors to consider here, too. First of all, as alluded to earlier, this change in policy is probably as politically motivated as it is economically. With G20 meetings around the corner, the Chinese DO NOT want to have the hounds released, so to speak. Consider this currency float a preemptive strike against the renminbi naysayers.

Economically speaking, this move could be interpreted as a sign that China has ended, or is ending, its "recovery" policies. Export numbers were strong as the country posted a 48.5% year on year increase in May. As this policy moves forward, it will be important to look at China's trade figures with Europe. For all the talk US-Chinese trade gets, Europe is actually the countries biggest importer. Already today, the renminbi appreciated against the euro. Signs of things to come? We'll see...

Tuesday, June 15, 2010

Golden Downfall

Check out the link (click the title) to see a good overview of the mineral wealth in Afghanistan.

This week, United States bureaucrats discovered some important papers from 2007 that they had managed to bury underneath mountains of documents. A geological team that canvassed the country in 2007 reported finding untapped mineral deposits worth up to $1 trillion dollars all over the nation. Considering that Afghanistan's current opium and narcotics-fueled GDP is roughly $10 billion, the discovery means that Afghanis are sitting on materials worth 100 times what they produce in a year. Notable discoveries include enough copper to make it a top 10 world producer, large quantities of gold in the south, and what the scientists think is enough lithium, used in batteries and computer parts and critical to today's world economy, to make it the world's top exporter of the metal. However, is all this resource wealth a blessing or a curse?

The first, and perhaps most obvious problem now facing Afghanistan is that it is quite frankly, worth owning. The Taliban were formerly fighting for control over a barren, windswept nation, now they are fighting for the opportunity to literally go swimming in a pool of gold. Furthermore, the nation has always been fractured and dominated by local tribal leaders. The nature of the mineral deposits means that individual minerals are concentrated in specific locations, setting up power struggles between Karzai and his corrupt central government and equally corrupt local leadership.

Next is the problem of the so-called "rentier state". Afghan industry is laughable, and even if companies were able to attract outside investment, they would lack the technical know-how to extract minerals. Consequently, Afghanistan would "rent" the minerals to multinational corporations, allowing them to reap the profits while taking a percentage of revenue. Fortunately, this means that Afghanistan couldn't use state-controlled industry to take over all the wealth and turn Karzai into an equivalent of a petro-dictator, but with minerals. Unfortunately, rentier states face huge crippling problems with corruption. Just last year, the minister of mines was replaced after being accused by America of accepting a $30 billion dollar bribe from China for the rights to develop its copper mine.

I'm not going to pretend like I know how Afghanistan can safely navigate its way through its newfound wealth. It will take rock-solid discipline from everyone in the government from top to bottom as well as responsibility and respectability from the corporations coming in to take advantage of the minerals. Of course, corporations can't be trusted when dealing with access to such a potential windfall, so taking care of those taking care of the minerals will be of utmost importance. If Afghanistan can use the new mines to put its nation to work (and not drug trafficking) and use revenue from them to further invest in its people, it will truly be a miracle for a downtrodden nation.

P.S. As an American, I must object to the Chinese being allowed to come in to build any more mines. They watched as NATO took care of the Taliban, and enables petro-dictators all over the world by buying their oil. Furthermore, they are guilty of being the businessmen in the world most likely to shell out bribes to get what they want in third-world countries. Letting them into Afghanistan would be both unfair and potentially disastrous for Afghanis.

Sunday, June 13, 2010

Blanche and Paul Cracking Down

It appears the ongoing lobbying battle banks have been waging in Washington is going to end in defeat for them. Although, that is not a fact, yet, the prospect is daunting for them. Blanche Lincoln, who is lucky to have her job right now (but that's a different story), is the senate agriculture chairman. She has proposed regulation that would force banks to separate their derivatives and other swap desks from the commercial banking sections of the banks. Naturally, this would require a great deal of restructuring on some large banks parts (Read: JP Morgan), however, it does not prevent banks from being involved in both businesses (i.e.-commercial and derivatives trading). I like this regulation, and I sincerely hope it stays at this level of "strictness," if you will. Former Fed chairman, Paul Volcker, who has become something of a right-hand man to Obama, has started to show more support for this regulation than he did previously. This increased support presumably stems from the more lax, though still thorough, regulation than was earlier expected. With Volcker on board, the plan is likely to pass, and I'm glad. Let the big banks do what they want, but keep those risky, yet lucrative, derivatives trades done under a separately capitalized subsidiary.

Wednesday, June 9, 2010

Green Security

Today, the U.N. Security Council pushed through a new round of sanctions against Iran as punishment for the country's repeated refusals to curtail its nuclear program. The measure passed on the strength of twelve of the fifteen nations included on the vote, with Lebanon abstaining and both Turkey and Brazil voting against the proposal. The new sanctions seem to give the United States and the E.U. leeway to impose their own stricter measures, but how much can they actually do?

Brazil, Turkey, and Lebanon robbed the sanctions of the power of a unanimous vote, claiming that they would hurt further chances for diplomacy. This new round of sanctions are aimed mostly at Iran's Islamic Revolutionary Guard Corps, which is responsible for the nuclear program. It ratchets up measures taken against 40 individuals, freezing their assets and putting them on travel ban, but does nothing against Iran as a whole. The United States tried to push additional sanctions against Iranian banks and its financial sector, but was firmly opposed by China and Russia, who refused to support anything that would hurt Iran's day-to-day economy. The Chinese ambassador Li Baodong said that his country's conditions on the sanctions were that they not harm the world economic recovery, the Iranian people, or "normal trade."

Funny thing is, "normal trade" for China constitutes $35 billion a year in oil deals with Iran, which supplies eleven percent of its oil needs. China only recently surpassed the E.U. as Iran's leading trading partner, and the WTO indicates that the "pariah state" also has major economic ties with Japan, Taiwan, and India. There is only one way to take the power out of the hands of crazy dictators such as Ahmahdinejad and Hugo Chavez of Venezuela: alternative energy growth. America can lead the charge into clean-energy investment, which if done right, can we a win, win, win for our nation. It can provide a massive amount of new jobs, help reverse our destruction of our environment, and take power from petro-dictators. There is a bipartisan energy bill in the Senate right now sponsored by John Kerry, Joe Lieberman, and Lindsey Graham. For the people of the United States, the people oppressed in places like Iran, and every living being on this planet, our Senate must pass that bill. It would kick-start not only our economy, but all of our futures.