I opened last week by discussing the economic situation in China and India. These two countries have taken on an increasing role in the world economy over the past decade and we find that their economic surge over this period to be quite a contrast to the sclerotic effort being made by what calls itself the “first world”. My policy suggestion for them from that article is shown below.
So if we look at the world right now we see that there is a danger of an economic slowdown in 2012 and that inflationary pressure has abated somewhat. This gives an opportunity for a policy response in India and further responses in China (she cut bank reserve requirement on November 30th). They should take it.
The danger to such a strategy was in my opinion the oil price and a possible inflationary surge which should it happen seems most likely to be influenced by the continuing Arab spring. However since I wrote the article the oil price has in fact dropped which only confirms me in my view. The price of a barrel of West Texas Intermediate crude oil has fallen from over US $98 then to US $93.30 as I type this. Now one week’s fall is not conclusive for an argument but it does add some weight to an existing argument I feel.
China’s housing market is slowing
There are now signs of cooling in China’s housing market. From her National Bureau of Statistics.
Comparing with the previous month, among 70 medium and large-sized cities, the sales prices of newly constructed residential buildings declined in 49 cities while that of 16 cities remained at the same level.
Comparing with the previous month, the sales prices of second-hand residential buildings decreased in 51 cities, while that of 12 cities remained the same level.
I think that the new trend is clear and we can see also signs of a fall on a year on year basis too as for example we see here.
Comparing with the same month last year, the sales prices of second-hand residential buildings decreased in 21 cities, went up 8 cities month-on-month. The growth rates of 40 cities dropped…
Indian inflation did dip in November to 9.1% although such a number is still high. However looking at her situation I see other themes appearing too as we have an Arab Spring type position here. India’s government has proposed a new food subsidy bill which expands her efforts in this area as shown below by the report.
Legal entitlement to subsidized foodgrains to be extended to at least 75% of the country’s population – 90% in Rural areas and 50% in urban areas.
75% of India’s population is an effort on a grand scale to say the least. And we return to my theme for the Arab Spring I believe we are back to the problems created by the rise in world food prices in the early part of 2011 for the poorer inhabitants on this Earth as for them higher prices can mean hunger and starvation. Indeed in India this problem of hunger and starvation was already a problem as the report points out.
As noted at the outset the Expert Committee is fully in agreement with the idea that 60 years after independence the Indian State should be in a position to ensure that the country is rid of hunger and malnutrition caused by poverty.
In a way this sort of issue is a reflection of what it is to be human I think. We see both our strengths ( a plan to reduce and hopefully eradicate starvation) and our weaknesses ( it has gone on for so long and 60 years is a long time). Indeed there is plenty of room for further thought on this subject by the fact that the Indian Air Force plans to buy 126 advanced fighter jets at an estimated cost of US $10 billion. If nothing else it reminds me of the Guns and Butter curve or equation.
Guns or butter?
I studied Germany in the 1930s when I did a History S-level ( At that time S-levels were a further A-level) and this discussion accordingly reminds me of a quote from then.
We can do without butter, but, despite all our love of peace, not without arms. One cannot shoot with butter, but with guns.
It gets even more chilling when you read that it was made by Joseph Goebbels and the concept of him having a “love of peace” is the sort of thing that maybe made the computer HAL go crazy and run amok in the film 2001.
But there is something closer to home here as whilst India has her own issues both the UK and the US have voted for guns over butter in recent years as we have pursued wars in Iraq and the Afghanistan. Over the next few years we may end up ruing such moves which apart from being if one is generous only a partial success militarily have left us weaker as we face the economic challenges of the decade to come.
And overnight we have heard of the death of Kim il Jong of North Korea who is the person who has pursued the guns over butter argument with enormous and indeed to the extent that North Koreans have died of starvation murderous conviction.
Are some mass murderers more acceptable than others?
Recently I attended a meeting in an office which had several pictures of Chairman Mao on the wall. Since then I have mused on the question above and on every occasion my answer is no and yet I know that there will be no outcry on this subject. I would be interested in readers thoughts on this subject.
Even more of a moral maze
If we look at the proposed Indian aircraft order we find ourselves ever more entangled in a moral spider’s web. The UK is competing for this order as part of the Eurofighter consortium so should it win it will be presented as an exporting success. There is always an issue with military exports but if we put that to one side the Indian order poses the “guns or butter” argument in a country with so many hungry and starving citizens. Just to make it worse we currently give a substantial amount of aid to her. This is currently planned to be £280 million a year for the next four years. Can we avoid considering whether the aid is part of the answer or part of the problem?
Stock Markets pose a problem
If I return to markets we see that equity markets are showing concerning signs. If we look at China we see that the Shanghai Composite index which surged by 80% in 2009 fell by 14% in 2010 and by a further 21% in 2011. The Indian Sensex index peaked at just under 21000 at the beginning of Novemeber 2010 but has not fallen to 15,379.
Now stock markets are by no means a perfect guide to the future but if we look at the pattern above we do not see much room for optimism do we?
The Euro zone continues on its self destruct mission
There are two ways of looking at this. As a child I was often taking at Christmas to see a pantomime where as an actor or actress was giving a speech or monologue the cry was “behind you”. This metaphor holds true each time we have a Euro zone politician or official makes a speech telling us they have fixed the problem as anyone with any sense can join in with the cry “behind you”
Quite often this takes the form of a Friday night downgrade by a ratings agency. These bodies often mimic pantomime villains by the sneaky timing of their moves and by the way that these moves do not follow a random pattern indeed some might consider them to be outright malevolent. Accordingly Belgium’s two-notch downgrade by Moodys fulfilled this pattern.
And if I may be so bold this downgrade it is point ten in the time line for a bank collapse that I published on the 10th of October.
10. Consequently that nation finds that its credit rating is downgraded.
There are points eleven,twelve and thirteen which I would imagine are of particular interest right now to readers I have in Belgium…..