Andy Lees: "Emerging Markets Unable To Continue The Heavy Lifting"

From Zero Hedge:

After his departure from UBS, Andy Lees went radiosilent while setting up his own research company, AML Macro. We are now happy to be able to bring to our readers' the occasional report from Lees, who has traditionally been one of our favorite macro analysts, and whose insights are usually months ahead of the maintstream.

In the last few days we have seen reports suggesting Brazilian household debt and service payments are weighing on growth, that Southeast Asia’s commercial credit is approaching its pre-1997 financial crisis peak of 75% GDP, and that South Korea’s household debt has reached 164% of disposable income compared with 138% in the US at the start of the housing crisis. Chinese debt rose 15% in excess of GDP last year from 191% to 206%. Its corporate cash flow is around 50% of profitability whilst loan growth is way in excess of the banks’ return on equity meaning the growth is dependent on a continual supply of new capital to the banks. Over the last few years whilst the developed economies have struggled to reduce their debt relative to GDP – (the most successful of the major economies has probably been the US which has taken non-financial sector debt down from a high of 253.15% GDP to 248.18% GDP) – the developing economies have taken advantage of cheap funding to inflate their debt levels dramatically, leaving the global debt position worse than in 2007.. Some of the emerging market debt is relatively small and the necessary rebalancing of the economy should be relatively easy to achieve, but even if it is only a cyclical limit as oppose to the structural limits of the developed economies, it is coinciding at the same time and will add to the global problem. As data on world GDP growth would suggest, it is not just Brazil where the numbers show “the exhaustion of a growth model based on consumption”.


World GDP Growth

http://www.zerohedge.com/news/2013-02-24/andy-lees-emerging-markets-unable-continue-heavy-lifting

Corruption in Politics Riling People, Sonia Gandhi Warns Party

From Times of India:

Taking serious note of middle class protesters taking to the streets over corruption, Congress president Sonia Gandhi said the lifestyles of leaders is giving rise to questions about the source of their wealth.

Speaking at Congress's chintan shivir (brainstorming session) here, Sonia said, "Celebrating weddings, festivals and happy events is one thing, what of lavish and ostentatious displays of wealth, pomp and status? Does this not beg the question, where is this wealth coming from?"

Her direct remarks caused a hush to descend on the meeting. "Our citizens are rightly fed up with the levels of corruption that they see in public life at high levels, but equally with the corruption they have to deal with in their daily lives,'' she said.

Sonia urged the party not to lose touch with the middle classes that backed the Congress in the 2004 and 2009 general elections. The party cannot afford "our growing educated and middle classes to be disillusioned and alienated with the political process".

The candid references to the middle class drift away from Congress, the need to keep alliances intact, a commitment to make women feel safer, and an admission that the party's base has eroded in traditional strongholds were key aspects of her speech as she set out the political tasks for her party.

Some of her comments were also seen to reflect her concern over the government's response to the outpouring of public anger over the Nirbhaya gang rape and criticism of police action against young protestors. "We have to recognize the new changing India, peopled by a younger, more aspirational, more impatient and more demanding generation. Our people are expecting much more from their political parties. Today's India is better informed and better equipped to communicate. This is a phenomenon, a churning that we must understand and continue to respond to."

Taking cognizance of the growing concern about women's safety, she said, "Atrocities on women, both in urban and rural India, are a blot on our collective conscience and a matter of great shame."

Sonia's carefully crafted speech referred to the principal political challenges before the party and the government at a time when UPA 2's credibility is seen to have taken a beating due to corruption scandals, an anemic economy and demoralizing electoral losses. "Is it not the case that we have squandered many opportunities that people are willing to give us simply because we have been unable to function as a disciplined and united team," she said.

http://timesofindia.indiatimes.com/india/Corruption-in-politics-riling-people-Sonia-Gandhi-warns-party/articleshow/18081171.cms

Why Korea’s Manufacturing Share Of Total Employment Has Dwindled (왜 한국 제조 일자리는 쇠퇴해 왔는가)

As one can see in the below chart, Korea’s manufacturing share of total employment has also fallen, following an inverted U pattern.  This has been associated with the decline of Korea’s middle class.

Why has this happened?  The causes are multifaceted.  Technological advancement and currency/labor arbitrage are among them.  The global production cycle comes full circle.  Global capitalistic forces are one factor.  Korea’s rapid economic success had been possible in large part due to its unique relationship with the U.S.  So had Japan and China.  In this context, the Asian mercantilist economic growth model was flawed from the start and bound to hit the wall at some point, as discussed many times.

Besides those factors, Korea’s policy failure such as blowing financial bubbles and letting chaebols shift its manufacturing overseas is the important equation.  Corporate greed is another crucial factor.  While some chaebols have become the global brands, Korea’s productive capacity has dwindled.  I have stressed that this issue should be at the heart when discussing any reforms re chaebols.  What it all boils down to is their social consideration and moral choice given the Korean government’s backing from their early days.

Hence, boosting Korea’s manufacturing jobs requires holistic and integrated solutions.  Quality manufacturing jobs and wellbeing of a nation go hand in hand.  They lead to the solid middle class base which is the backbone of Korea’s democracy, and productive capacity is the wealth of a nation.

박근혜 대통령 당선인이 미래창조과학부를 신설하여 국가의 중장기 성장전략을 짜고, 신기술 개발이 좋은 일자리 창출로 이어지게 정책적 지원을 제공하게 된다고 한국 언론들이 보도하고 있다.  염려되는 점은 여려 면에서 현대는 아버지 시대와는 매우 다르다는 것(이미 이 블로그에서 여러 번 논의되었듯이), 국가가 주도적으로 직접적인 interventions을 통해 특정산업을 육성하기 보다는 장기적인 안목에서 기술혁신과 기업가 정신이 번성할 수 있게 전반적인 mechanism과 infrastructure를 구축하는 간접적인 정책을 펼쳐야 한다는 것이다.  물론 미국도 국가적으로 육성하는 기술분야가 있지만 이는 상당부분이 군사기술과 연결되어 있다는 것이다.(물론 많은 미국인들도 신기술개발을 통한 일자리 창출을 기대하고 있지만 현재로선 요원한 얘기이다)  간단한 예로 자본력과 한국에서 가장 우수한 기술인력을 보유한 삼성도 온갖 방법을 다 동원해도 결국 catch up 전략으로 승부를 하고 있는데, 미국도 기술혁신에 어려움을 겪고 있는 신기술분야를 과연 관이 개입해서 한국의 열악한 기술인재 인프라를 가지고 또한 예산 분배 과정과 실행에서 온갖 이권이 개입할 텐데 이게 여태까지의 전례로 봐서 가능할 가를 심사 숙고해야 할 것이다.  한국이 휴대폰산업의 집중육성 같은 성공사례가 있다고 얘기하지만 실제로 그 혜택이 장기적인 관점에서 국민들에게 돌아가진 않았다는 점도 염두에 두어야 할 것이다.  우리가 산업기반이 부족하여 catch up 전략이 유효하게 작용했던 산업발전 초창기에는 관주도의 집중기술육성이 주효했지만 이 접근방식은 또한 폐해도 나았다는 점도 고려해야 할 것이다.  새 대통령께서 전자공학과 출신으로 누구보다도 과학기술발전을 통한 국가의 부 창출에 관심이 있으시고 이 블로그의 핵심 주제도 이러할진대 많은 요소들을 고려하여 한국이 transition해야 할 경제 모델의 밑그림을 그리시고 이에 맞는 과학기술육성에 대한 비전을 도출해 내시고 구체적인 정책을 수립해 나가시기를 진심으로 바란다.

From Zero Hedge:

 

Source: McKinsey

http://www.zerohedge.com/news/2012-12-21/why-manufacturing-jobs-are-not-coming-back

350 Million Indian Families Starve As Politicians Loot $14.5 BIllion In Food

From Zero Hedge:

While The Brits are about to tax their Super-Rich, it appears one of the old colonies remains in full anti-Robin-Hood mode. Nothing surprises us much anymore but this note from Bloomberg too the proverbial biscuit. In the "most mean-spirited, ruthlessly executed corruption," India's politicians and their criminal syndicates have looted as much as $14.5bn in food from one province alone. 57,000 tons of food meant for the devastatingly poor of the Uttar Pradesh region is sat in a government storage facility five football fields long. The 'theft' has blunted the nation's only weapon against mass starvation and as Supreme Court commissioner Naresh Saxena notes: "What I find even more shocking is the lack of willingness in trying to stop it," as the Minister for Food, who stands charged with attempted murder, kidnapping, armed robbery and electoral fraud, has diverted more than 80 percent of the food. "Who is a person who holds a below poverty line ration card? A person of no influence; you can just tell him to buzz off." But there is growing tension "We could just storm the place, and every one of us could get a bag of rice each. Who would stop us?"

http://www.zerohedge.com/news/350-million-indian-families-starve-politicians-loot-145-billion-food

UBS: Asia's Downside Risk and the Three Big Hopes

From Zero Hedge:

'Risks are all to the downside for Asia' is the view of UBS' global macro team. It appears the markets are pinning their optimism on growth and earnings over the next year on three hopes: that the US will not fall off its 'fiscal cliff'; that Europe will 'muddle through'; and that China will pull Asia out of the current morass. Duncan Wooldridge takes on each of these 'hopes' noting that he expects Asian exporters to be far more likely to pull back on investment and take a wait and see attitude than simply ride into the breach.

http://www.zerohedge.com/news/asias-downside-risk-and-three-big-hopes

Satyajit Das: The Great Pretender – India’s Economic Past and Future

Good discussions in the comment sections.

Part 3: Political Atrophy

From Naked Capitalism:

In the aftermath of the global financial crisis, optimists hoped that the BRIC (Brazil Russia India China) would drive the global economic engine. But China’s economic growth has slowed to its lowest rate in three years. Brazil’s economic growth has fallen from around 7.5% to under 3%. Russia’s economy is heavily dependent on oil and energy prices. India also has stalled. This 3-part paper looks at the development and future trajectory of the “I” in the “BRIC”. The third part looks at the India’s inability to confront its current problems.

http://www.nakedcapitalism.com/2012/05/satyajit-das-the-great-pretender-indias-economic-past-future-part-3-political-atrophy.html

Part 2: “A Sea of Troubles”

From Naked Capitalism:

The second part looks at the India’s current problems.

http://www.nakedcapitalism.com/2012/05/satyajit-das-the-great-pretender-indias-economic-past-future-part-2-a-sea-of-troubles.html

Part 3: “India Shining”

From Naked Capitalism:

The first part looks at the background to India’s recent rise.

http://www.nakedcapitalism.com/2012/05/satyajit-das-the-great-pretender-indias-economic-past-future-part-1-india-shining.html