VACACIONES OCTUBRE 2016 (CLICK ON LINK)
CHINESE INVESTMENT: A SPONGE WRUNG DRY / THE ECONOMIST
Chinese investment
A sponge wrung dry
China’s private investors keep their hands in their pockets
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ORDERS from on high can shape the Chinese economy. In 2013 Xi Jinping, the president, said cities should be more like sponges, sopping up rainwater for reuse when parched. China is now working on some 30 “sponge cities”. Then in 2014 Mr Xi said the government should encourage businesses to invest in state projects. Since then China has announced plans for thousands of “public-private partnerships” (PPP), including sponge cities. But investors do not seem interested. Sponge cities are struggling to soak up private capital.
This month Guyuan, a city in Ningxia, a north-western region that is dry most of the year, launched China’s first sponge-city PPP. However, as is the case with others that are in the works, the “private” side of the partnership was not all it was cracked up to be. The investor, Beijing Capital, is in fact a government-owned firm. And to make the deal viable, the government pitched in a subsidy worth nearly one-fifth of the 5 billion yuan ($750m) total cost.
This points to a bigger problem: a sharp slowdown in private investment in China. New data on September 13th underlined the trend. Over the first eight months of 2016, private-sector investment rose by just 2.1% from the same period a year earlier, virtually the lowest rise since records began in 2005. Meanwhile state-backed investment has soared (see chart). It might seem unsurprising that the government is driving China’s economy. But it marks a big shift: the private sector was responsible for roughly two-thirds of investment over the past decade.
And since investment accounts for nearly half of GDP, private caution clouds the growth outlook.
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The simplest explanation for the slowdown is that the state has crowded out the private sector.
Government-backed entities have long had better access to banks. In the past private companies have compensated by using their own earnings and tapping shadow lenders. Both routes are harder this year. Profits are not growing at the heady double-digit rates of not long ago. At the same time regulators have curbed shadow banks, leery of the risks brewing inside them. A side-effect has been to deprive some private firms of financing.
Yet that is only part of the problem. Many companies have money but are not spending it, says Zhu Haibin of JPMorgan Chase. They are keenly aware of the overcapacity in industries from coal mining to solar-panel making. Returns on capital have fallen by a third since 2011 to about 7%, according to Société Générale. With average bank lending rates just a touch lower at 5.25%, many are holding back, hoping profitability will improve. State firms can afford to pay less attention to the bottom line. Despite weaker returns than their private peers, they have kept investing.
The politics of big infrastructure projects are also a stumbling block. Local governments are reluctant to cede their most promising projects to private investors. Many officials are suspicious of private firms. Beijing municipality recently signed a PPP agreement for a new highway, and picked China Railway Construction Corp, a mammoth state-owned enterprise, as its partner. The official in charge suggested that private companies had neither the ability nor the capital necessary. And with ventures such as the sponge cities, it is not clear to private investors how they will make returns. Unlike toll roads or power stations—normal fodder for PPP deals—better drains and reservoirs are not easily converted into profits.
This being China, there are, as ever, questions about the quality of the data on investment. Some economists believe the public-private gap is exaggerated because of the government’s stockmarket rescue last summer, when the state acquired bigger stakes in companies. As these ownership changes filter into the data, they may be adding to the apparent increase in state investment. Separately, catastrophic numbers from Liaoning, a north-eastern province, have wreaked havoc with national statistics this year. Investment there is down by nearly 60%, but this may largely reflect a clean-up of previously embellished figures, not an economic disaster.
The government itself, however, is certainly behaving as if the problem is more than a statistical accident. This summer it dispatched teams of inspectors to 18 of China’s 31 provinces to see why private companies were not investing. Earlier this month the cabinet unveiled measures to encourage them to spend more. It promised to treat private firms the same as public ones when investing in sectors such as health and education. It called on banks to lend more to them. And it said it would roll out more PPP projects, enticing private investors with larger state subsidies.
These pledges may well show some results in the coming months, especially now that the government is talking so openly about the need to spur private investment. But many economists say that bigger changes are needed. To begin with, China could make it easier for private businesses to invest in state-controlled sectors such as finance and transportation. The government could also break up some of the state-owned enterprises that currently dominate these sectors. For the time being, though, it is moving in the opposite direction, merging state firms to create even bigger national champions.
The silver lining in all this is in what it says about the acumen of China’s private investors.
Their caution reveals how big a role market forces, as opposed to top-down orders, now play.
The government would love to see companies open their wallets. Instead, they are behaving like sensible businesses anywhere. They are conserving their cash and waiting for better opportunities than sponge cities to emerge.
WHEN THE MUSIC STOPS: WHY THE U.S. CONSUMER WILL CAUSE THE NEXT CRISIS / SEEKING ALPHA
When The Music Stops: Why The U.S. Consumer Will Cause The Next Crisis
by: Theo Vallee
- The market is materially mispricing the strength of the US consumer whose weakness will lead the US economy into a recession in Q1 2017.
- The deterioration of lower and middle income consumers indicates that the top is next to roll.
- The Federal Reserve has its hands tied, which will lead to lower yields and a bid for gold.
THE DECLINE OF AUSTERITY POLITICS / GEOPOLITICAL FUTURES
The Decline of Austerity Politics
More pressing issues have taken the place of belt-tightening.
By Lili Bayer
In September 2011, German Finance Minister Wolfgang Schäuble wrote a piece in the Financial Times entitled “Why austerity is only cure for the eurozone.” But in reality, Schäuble’s stance was that austerity in southern Europe was the only cure acceptable for Germany – Europe’s largest economy and a major creditor, whose economy depends on the stability of the eurozone. However, there are now growing indications that Germany is being forced to shift its commitment to austerity. Several key factors are contributing to this evolution. Germany’s export crisis, lower interest rates, the refugee crisis and political changes across the Continent have led to a change in Germany’s constraints and priorities.
Over the past few years, the debate over austerity had serious implications for European politics. One of Germany’s top preoccupations was debt levels in some European economies. Berlin pushed some European governments, especially in southern Europe, to adopt harsh austerity measures. Southern European leaders have long fought against Berlin’s insistence on austerity.
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VACACIONES OCTUBRE 2016
Jueves 29 de Setiembre del 2016
Queridos amigos,
Durante estos días no
tendré acceso regular al Internet ni a mis correos.
No mucho ha cambiado desde mi última carta en Mayo
pasado. Los bancos centrales de todo el mundo, comenzando por
la FED, han seguido inyectando cantidades enormes de papel moneda sin
respaldo, dominando los mercados financieros y aumentando los desequilibrios,
la volatilidad y el desajuste económico.
Se calcula ahora que el monto de estas inyecciones llega a los 2
trillones de dólares anuales, distorsionando la realidad económica
global peligrosamente. Todo esto se está viendo
reflejado indirectamente en un aumento de la desigualdad en todo el
mundo y la desestabilización de los sistemas políticos y sociales.
Más
aun, recientemente, Roberto Acevedo, el Director General de la Organización
Mundial de Comercio (WTO), dijo que el último recorte del comercio global para
este año de 2.8% a 1.7%, debería ser una llamada de atención a los gobiernos.
Es la primera vez en más de 15 años, que el comercio mundial queda detrás de la
proyección del crecimiento económico. Y de acuerdo al Fondo Monetario Internacional, la participación en el Producto Bruto global de los países de altos ingresos (esencialmente los Estados Unidos de Norteamérica y sus principales aliados) caerá de 64% del producto global en 1990 (medido como poder adquisitivo), a 39% en el 2020, mientras que la participación de los Estados Unidos de Norteamérica, caerá de 22% al 15%, en este mismo periodo.
Europa
está cada vez más complicada. Después de Brexit, ahora se complica la situación
con los bancos italianos y la exposición del resto de Europa a ellos,
especialmente los bancos alemanes. La tasa de interés Libor ha sufrido un
incremento notable, presionando a los mercados financieros y al banco central
(ECB), que sigue emitiendo 80 billones de euros de QE mensuales, pero cada
vez tienen menos activos financieros disponibles para adquirir. Otro
"conumdrum".
El retorno a la realidad promete ser muy duro para los
inversionistas y los ahorristas que desde ya se están viendo afectados por
las tasas negativas de interés y la desaparición creciente de la economía de
mercado, que está siendo sustituida por una economía del estado, manipulada e
intervenida, ficticia, alejada de las leyes esenciales de la oferta y la
demanda y la fijación de los precios por los mercados libres.
Ello está obligando a los inversionistas y a los ahorristas a
buscar rendimientos tomando cada vez más riesgos crecientes en sus
inversiones. Cuando esta nueva burbuja del crédito de los bancos
centrales reviente, el daño a la economía mundial será enorme e irreversible.
Esta situación de la economía global ahora dominada y manipulada
por los bancos centrales del mundo nos lleva a preguntarnos, ¿es el
socialismo el próximo statu quo global?
Estos
tres artículos últimos de John Mauldin son un claro resumen de lo que sucede
hoy y la creciente intervención de los bancos centrales en la economía mundial.
Six
Ways NIRP is Economically Negative, Monetary
Mountain Madness y el último, Negative
Rates Nail Savers, y se explican por sí mismos.
Igualmente,
el artículo The
World Before World War II Re-Emerges de George Friedman, es de sumo interés
para los lectores que no quieren estar desinformados y complementa todo lo
anterior.
La situación económica y financiera internacional se ha
seguido deteriorando, con el consiguiente aumento creciente de la
volatilidad de los mercados financieros, según lo ya previsto en mi
carta de Mayo
pasado, replicada en algunos párrafos
líneas más abajo para mayor abundancia, impactando duramente a los países
emergentes, las monedas, el petróleo y los precios de los
"commodities", el fortalecimiento notable, pero relativo del dólar
norteamericano (el oro aumento de valor 20% plus desde principios de año), típico de las épocas de crisis, y una retracción cada vez más
marcada del crecimiento del producto mundial, ahora ya reconocido por todos los
bancos centrales y el BIS (el banco de los bancos centrales), lo que
nos coloca claramente bajo la sombra del temor de una
potencial deflación y de la recesión global, cada vez más y
más inevitable.
En los últimos meses el anuncio de una política de aumento de
intereses menos agresiva que la anunciada previamente, por parte de la
FED, ha debilitado ligera y temporalmente al dólar, e impactado transitoriamente de
manera positiva a los precios de las materias primas y los mercados de
acciones.
Sin embargo, esta situación se ha venido revirtiendo y los
mercados están hoy más pendientes de las decisiones de la FED que de la de los
resultados de la economía real.
"Risk off" y "Risk on", se han convertido en
el día a día de los inversionistas y los mercados financieros, aunque hay dudas
crecientes sobre la capacidad de los bancos centrales de mantener este estado
de ficción bajo control por sí mismos.
La pregunta es cuánto tiempo puede durar esta situación en una
economía global manipulada descaradamente por los bancos centrales y en franco
camino de deterioro, con el continuo crecimiento de la desigualdad de los
ingresos y una clase media cada vez más disconforme, como lo reflejan las
coyunturas políticas preocupantes de los últimos tiempos, tanto en los
Estados Unidos de Norteamérica, como en Europa y el resto del mundo.
La enorme volatilidad de los mercados financieros, que pensamos
será cada vez mayor, es un síntoma de esta situación insostenible a mediano y
largo plazo. En un último estudio publicado por el Citigroup se
estima que el "hueco" de los fondos de pensiones de los 20 países más
importantes de la OECD es ahora alrededor de 72 trillones de dólares.
Cerca del doble del PBI mundial.
La reciente creciente y notable volatilidad de los
mercados financieros, las dudas hamletianas de la Reserva Federal sobre
las tasas de interés y la reciente volatilidad de las bolsas, son solo una
pequeña muestra de la descomposición de las economías y los mercados globales.
En realidad no podía ser
de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos
años para reparar los profundos desequilibrios estructurales en los
fundamentos de la economía global, sino que más bien, por el
contrario, se ha seguido "maquillando" por parte de los bancos
centrales la insostenible situación económica y financiera global,
profundizando los desequilibrios y la inestabilidad vía el constante
crecimiento de las deudas, aumentando las ineficiencias y dilatando el
necesario ajuste.
El crecimiento estructural de la economía global es cada vez más
frágil, dudoso e insostenible.
Hasta la crisis del 2000 y
luego de la del 2008, ahora así llamada la Gran Recesión, la demanda
global había sido “subvencionada” por un sistema financiero manipulado e
intervenido, creando una demanda y una economía global
ficticia, una recuperación así llamada "sub-prime", liderada por
la FED mediante un crecimiento desproporcionado de las deudas,
imposible de auto-sustentarse en un crecimiento de la economía real en el
largo plazo.
Deuda, deuda y más deuda,
parece ser el mantra de la FED.
Desde entonces, la FED y
el resto los bancos centrales de todos los países más importantes del
mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el
inicio de un ajuste inevitable y estructural, regresando a un nivel real
de la economía global de alguna manera manejable. Aún siguen abocados al
esfuerzo de una gran represión financiera, manipulando e
inflando irresponsablemente los mercados financieros vía una política
monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy
bajas tasas de interés, o hasta tasas de interés negativas en muchos
países del primer mundo.
Las deudas de consumidores, empresas y gobiernos, eran
y son insostenibles.
Por ello creemos que
los bancos centrales no aumentarán de "motu propio" las tasas de
interés de manera importante a corto plazo, salvo que este aumento provenga
final y sorpresivamente de una crisis generada por la desaparición de la
confianza de los inversionistas globales en los mercados financieros. Más
bien los bancos centrales seguirán, en la medida de lo necesario, con su
política de seguir emitiendo e inyectando moneda sin respaldo a los
mercados, bajando las tasas de interés a niveles aún más negativos e
interviniendo los mercados de capitales mediante compras de bonos y de
acciones, distorsionando cada vez más los precios de los activos financieros en
todo el mundo.
Inmediatamente sus deudas
se volverían obviamente impagables y la crisis que tanto han tratado de
evitar reconocer, sobrevendría inevitable.
Solo para
mencionar al país con la economía más importante, la deuda de
los Estados Unidos de Norteamérica ha crecido por encima de los 19.5
trillones de dólares, a más del 100% de su PBI. Y si incluimos las deudas
contingentes internas, como el Seguro Social y los Fondos de Pensiones,
algunos analistas calculan que la deuda norteamericana podría llegar a
sumar entre los 80 a 120 trillones de dólares, es decir, entre 5
a 7 veces el producto bruto anual. Y en aumento.
Para un análisis detallado
del desarrollo de esta problemática y la verdadera situación
actual, ver los artículos del blog, aquí, aquí y aquí.
Esta situación se ha
seguido agravando en los últimos años y es insostenible en el mediano
y largo plazo. (ver articulo)
Para evitarlo, es que los
bancos centrales han tenido que esforzarse en mantener ficticiamente
una apariencia de normalidad en el "statu quo", inyectando cantidades
innombrables de papel moneda sin respaldo a los mercados financieros y reducido
las tasas de interés a niveles nunca vistos por largo tiempo, desde que la
historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc…)
Todo ello nos hace
presumir que todo ello se lleva a cabo por el fundamentado temor
a perder el control del esquema Ponzi mundial, que es lo que son
ahora la economía global y los mercados financieros, y por ende
se derrumbe el castillo de naipes enfrentando de golpe un ajuste
económico enorme y hasta la posibilidad de una revolución social
incontenible, guerras, etc.
El hecho es que el
esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría
de los bancos centrales del mundo, en los últimos 15 años, más intensa y
desproporcionadamente desde los últimos ocho años, además, ha producido la
transferencia más importante de riqueza que se recuerda en la historia, de
manos de los pensionistas y los ahorristas, hacia las clases privilegiadas y
los bancos.
Mas importante todavía, se
ha distorsionado y manipulado fundamentalmente las reglas de la economía
del libre mercado con consecuencias funestas y aun impredecibles en el mediano
y largo plazo para los consumidores e inversionistas del
mundo, incrementando la locación ineficiente de los recursos de
inversión, además de multiplicar el costo de la inevitable implosión de
los mercados financieros, tanto de las acciones, como de los bonos y
otros instrumentos de inversión financiera.
Todo esto para no
mencionar a los derivados financieros, estimados por algunos analistas en
más de 1 cuatrillón de dólares (1000 trillones de dólares), que se ciernen
como una espada de Damocles, sobre todo el sistema financiero y
económico internacional.
El mismo FMI ha advertido
hace ya unos meses de la posibilidad que la economía global está entrando
a un periodo de "estagnación" y a una probable nueva recesión, con
las consecuencias que ello implicaría. (ver articulo) Y recientemente ha vuelto a reducir su
estimado de crecimiento para la economía global de 3.6% a 3.2%. Y en un último
y reciente informe, la OECD ahora predice el crecimiento global en 2.9%,
el más bajo desde la crisis financiera del 2008.
No nos extrañaría que estos estimados se sigan reduciendo en el
futuro cercano, especialmente si tenemos noticias negativas del desarrollo de
la economía China, en la que algún analista está comenzando a prever un
"hard landing" y de la enorme deuda interna de la economía China,
influenciando negativamente de manera importante a los mercados
financieros globales.
Obviamente estos
organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos
mismos el adelanto inevitable del descalabro global, el caos y el
ajuste sin anestesia, con resultados imprevisibles.
La pregunta de
fondo es ¿hasta cuándo se podrá o podrán mantener esta realidad
bizarra? Y eso nadie lo puede responder con seguridad. La confianza de los
inversionistas en los mercados financieros es la verdadera incógnita.
Por ello
ahora tenemos que seguir preguntándonos seriamente, ¿Cuál de todos
los potenciales "cisnes negros", conocidos o no, que hoy se
ciernen sobre la economía global, y que son muchos, económicos,
sociales y geopolíticos, podrían ser el detonante de la nueva
catástrofe?
Solo la historia nos
responderá a esta crucial pregunta. Por ahora, podemos especular que las
próximas elecciones norteamericanas en Noviembre próximo son y serán un factor
de gran importancia para el comportamiento de la FED, manipulando los mercados
lo mejor posible, para influenciar de manera positiva a la administración
saliente, o dicho de otra manera, para evitar perjudicarla lo mayor posible,
con un ajuste enorme y anticipado de las grandes incoherencias en la que se
encuentra la economía norteamericana y la global como consecuencia de dichas intervenciones
de los bancos centrales, en especial de la FED.
Mientras tanto, en medio
de este mundo bizarro, tenemos que insistir nuevamente y más que
nunca, que la experiencia y la prudencia, el análisis
y la inteligencia, la vigilancia y la paciencia, son los socios más
importantes en las decisiones de políticas y estrategias de
inversión a corto y mediano plazo.
En un cambio
importante de ciclos como en el que pensamos que estamos
envueltos hoy día, y en el que más allá de lo circunstancial, el
pasado y el futuro se bifurcan y se oponen, los riesgos para los
inversionistas son profundos. (ver articulo)
Con estas anotaciones
y advertencias que espero les sean de utilidad, me despido de Uds. con un
cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de
la semana del 24 de octubre próximo, cuando estaré nuevamente a
su gentil disposición.
Gonzalo
PD. Para leer los
artículos pueden subscribirse directamente entrando al blog: www.gonzaloraffoinfonews.com
WRESTLING COMES TO THE PRESIDENCY / GEOPOLITICAL FUTURES
Wrestling Comes to the Presidency
The candidates and the audience have thrown decorum by the wayside.
By George Friedman
I watched last night's debate having decided that I was going to write something about it in spite of the fact that I don’t normally write on domestic American politics. There are two reasons for this.
First, there are so many others doing a fine job of it. Second, and this is particularly true in this election, I know that I will get serious hate mail no matter what I say. The passions in this election are so intense that both Donald Trump and Hillary Clinton supporters believe that any slight to their hero warrants rage. I had someone email me a few weeks ago that I should be taken to the gallows because of something I wrote about the election. I have to think the writer was British, because who else uses the term gallows.
Let me begin this discussion by saying that I am one of many people who feel that I cannot vote for either candidate. I am the perfect center of American politics, balanced between the two poles, and increasingly unshakeable. So if you feel I have insulted your favorite candidate, rest assured it isn’t because I like the other one.
The most startling thing tonight is the chaos of the election. The first debate I ever saw was John F. Kennedy versus Richard Nixon in 1960. I was bored. I have since watched almost all the presidential debates, and most of them had a substantial element of boredom, with rare moments of striking wit. But all debates I recall had a basic decorum. A question was asked, a certain time was allotted to answering, and the answer might have gone a bit long, but only a little. It was fair to both candidates, and allowed us to see how they formulated answers off the top of their heads. It actually didn’t tell me much, and it was boring, but I had no problem with my president being boring. His job was to oversee many things, filled with details, and a flashy personality might not be a handicap, but it certainly wasn’t essential.
What struck me tonight was the complete absence of decorum. There was no respect for either the question or the time limit. The moderator will undoubtedly be blamed, but there was no way he could control that. He could not insist that the question he asked be answered or that the candidate shut up after a bit. The audience also felt free to ignore the rules. And that was what struck me the most: the candidates and the audience clearly didn’t think the rules mattered or that they were essential to anything as significant as a presidential debate.
It was then I realized that the presidential debate was no longer about the solemn process of the citizenry of the republic selecting the president and commander-in-chief of our armed forces. I was watching World Wide Wrestling. I confess to having liked to watch wrestling in my youth. I knew it was faked. I knew that all the howling and screeching were to please the audience. I suspected that neither wrestler really cared about the other, no matter how much they raged. The referee was ignored or sometimes thrown out of the ring.
The more I watched the debate, the more I felt I was watching a staged wrestling match. No one paid attention to the rules. No one paid attention to the referee. There were howls and screeches, but no one actually laid a hand on the other. Both were in their own world, and the world of their advisers, saying things with the primary purpose of making the other candidate howl in impotent rage.
When did we become this way? I remember a particular program that broke all the rules back in the 1980s. It was called “Crossfire.” Until that point, political discussions on TV were rather sober affairs. “Meet the Press” follows the old line of TV politics. “Crossfire” had two people from the left and two from the right (anyone in the middle didn’t exist). A moderator threw out a question, and the participants began talking over each other, yelling and occasionally hurling personal invective. I recall that it was shocking, and that commentators were solemnly appalled. But the show had an audience. And the more unseemly it was, the more the ratings went up.
Tonight’s debate was the direct descendant of “Crossfire.” It violated all norms of civilized behavior. It was an arena of certainty and contempt, and it treated a debate on serious matters of public policy on national television as if it were a wrestling match. Over time, political discussions on television have deteriorated. When “Crossfire” began, it had some extremely intelligent and knowledgeable people. But as time went on, people were clearly selected for their endurance rather than their knowledge. It must have burned off many calories to get through that show. Today, with a handful of exceptions, that is what political discourse has descended to.
Wrestling or watching the Kardashians does not strike me as significant. But the discussion of war in which Americans might be killed or police arrests where Americans were killed requires a sort of sobriety that we no longer have. Also lost was any sense of a citizen’s responsibilities as a solemn obligation and candidates conducting themselves with dignity.
I saw little dignity in either candidate. Trump played the role he has played all along. Clinton played the role of a policy adviser. Neither seemed to understand that behaving with gravitas, with seriousness, is not meant to impress other people. It is meant to remind yourself that you are a candidate for president of the United States and as such may be called on to make decisions that will affect the future of the country.
More important, the candidates were supposed to represent a truth fundamental to democratic life. As much as they might have disagreed with each other, whatever they thought privately, their public personas toward each other should be meticulously courteous, and personal charges and counter-charges excluded as much as possible. The reason is simple. In a democracy there are elections, but if the republic is to survive, the elections cannot override the fact that we are all citizens, and that our agreements override our disagreements. Each candidate should be honored to support the other if he or she wins.
In the wrestling ring it doesn’t matter. You know that at the end of the night, the wrestlers will have drinks with each other. We have reached the point where insults, no matter how vile, and how unforgivable, are not only accepted but expected by the public. Trump said that Hillary doesn’t have stamina. Clinton charged him with failing to pay his workers. Nothing was out of bounds. And very little that was said mattered. At the end of the night, we can wonder who won the wrestling match, but truthfully it didn’t matter. We had our favorites and that was that.
As I watched the debate I cared little about what they said, most of which I had heard before. What I was struck by was the complete absence of dignity on both their parts, the dignity necessary to hold the office. Assuming the burdens of the office is not a cliché. But the debate was designed to make us forget that. In the end, the most important thing a president will do is something he or she never anticipates doing. There is a moral strength needed at the moment when the unexpected opens its jaws at you. The debate didn’t even try to show us that.
TRUST BUSTING / THE ECONOMIST BUTTONWOOD COLUMN
Buttonwood
Trust busting
The dangerous contradiction between economic reality and political rhetoric

MANY political upheavals of recent years, such as the rise of populist parties in Europe, Donald Trump’s nomination for the American presidency and Britain’s vote to leave the EU, have been attributed to a revolt against existing elites. People no longer trust mainstream politicians, nor indeed the media that report on them. This of course has huge economic as well as political consequences.
Some populist political leaders try to exploit this climate of mistrust—and extend it to encompass foreigners and minorities within the domestic population. These people, it is alleged, intend to cheat, rob or sponge off the voters. By extension, international agreements, it is implied, are a betrayal of domestic voters—backroom deals cooked up by global elites looking after their own interests.
Trust is built into the heart of almost all economic activity. Once humans specialised, they required others to produce what they themselves did not—the farmer needed the blacksmith to produce his tools, the blacksmith needed the farmer to supply his food. A global trading system requires us to deal with complete strangers on a daily basis. We must trust companies to deliver the goods we order, our employers to pay our wages and the banks to keep our deposits safe.
Any hint of a general erosion of trust—of a retreat to the kind of economic nationalism that marked the 1930s—would be a very worrying sign. Already new trade agreements, such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, face an uphill struggle to be implemented. As yet, however, nothing suggests that the angry political mood is being converted into boycotts of foreign goods or firms. Consumers seem to value their iPhones and Volkswagens too highly to deprive themselves of them on political grounds.
Yet complacency would be unwarranted. The 2007-08 crisis showed what can happen when belief in the financial system breaks down. Banks lost confidence in each other’s creditworthiness and refused to lend; a knock-on effect was that companies found it hard to get trade credit. Economic activity suffered. In 2011 investors lost confidence in the creditworthiness of some European governments; bond yields spiked, recessions followed.
Disaster was avoided with the help of immense efforts from central banks. As a result, bond yields have fallen sharply. Historically, this has been a sign that investors are less risk averse than before—they trust debtors will not default and that central banks will not stoke inflation.
Yet it is harder to argue that negative interest rates and bond yields are a sign of enhanced trust—instead, it seems that investors are so desperate to park their money with safe lenders that they are willing to pay a penalty to do so. Furthermore, central banks are in a vulnerable position. They have been able to act decisively in the past few years because they are free of democratic constraints. But their actions have attracted criticism—from the right in America and Britain and from all quarters in the euro zone. Central bankers were given policy freedom because they were perceived to be disinterested experts. Now both their impartiality and their expertise are in question. The powers that democratic governments bestow, democratic governments can take away.
The dependence on trust makes the global economy vulnerable in another way, too. Systems benefit from being more open; the more people that can take part, the more potentially profitable connections can be made. But open systems can be exploited by those with malign intentions. The laxity of boarding procedures on American domestic airlines was exposed by the 9/11 attacks.
Every system of exchange ever devised has been exploited; coins made of precious metals were debased; paper notes were forged; cheques bounced. Today money largely consists of bits on a computer, a staggeringly convenient system that allows people to pay instantly for goods (often denominated in different currencies) from all over the world. But it also causes immense frustration for consumers and retailers when systems are disrupted and internet connectivity breaks down.
Cyberwarfare is an increasingly tempting tool for the ill-intentioned; the source of an attack is hard to trace and responsibility is easy to deny.
That again brings the problem of declining trust into focus. Today’s economy and financial system depend on global co-operation; today’s political system is one where such co-operation is increasingly seen by voters as intrinsically suspicious. That is a dangerous disconnect.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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