It was only a matter of time before the declining dollar affected the world of sport. In years past, the Europe's prime basketball talent bolted across the pond for the superior pay and play of the NBA. Now, the trend appears to be heading in the opposite direction, thanks to the rising euro and an influx of Russian investment in the European league. Suddenly, playing in Europe doesn't sound like such a bad idea after all.
Former New Jersey Net Bostjan Nachbar (above left, with Dallas's Dirk Nowitzki) is the latest player to spurn the NBA and sign a more lucrative contract with a European team, which pays in the much more attractive euro, and often tax-free:
The NBA had better be careful," Nachbar said. "European teams are offering a lot of money. It's much more, considering there are no taxes, than what I could make signing for the midlevel exception."
Once confined to players with previous overseas experience, the trend is spreading to home-grown Americans, too. Highly rated high schooler Brandon Jennings, struggling with academic issues, shocked the college basketball world by opting to play in Europe instead of attending school. And Atlanta's Josh Childress, unhappy with the state of contract negotiations with the Hawks, is weighing an offer to play in Greece.
As dreams of a gas-tax holiday died in Congress amid concerns of lost jobs for transport and construction, lawmakers in the Ivory Coast are paying for a reduction in fuel costs out of their own pockets. Both government ministers and managers of state-owned companies will see their paychecks halved to pay for a 10-percent cut in fuel prices, Prime Minister Guillaume Soro says:
Having heard the people's cry from the heart, the government has decided to cut the price of fuel," Mr Soro said.
A noble effort on its face, yes, this political stunt could actually be double trouble for the people of Ivory Coast. We've expressed our skepticism toward "gas-tax holidays" before, but lowering government officials' pay can also prove problematic, making ministers more susceptible to the ubiquitous temptation of corruption.
Of course, people prefer rising stock prices to declining ones. Wouldn't it be wonderful if shares never fell? But such actions call into question the claim that ours is a free-market system. More and more, our version of free markets holds that they are free only when asset values rise. When they fall, the markets must be managed.
Scrap metal is piled up at a metal recycling facility on July 17 in Chicago, Illinois. With scrap metal prices near historic highs, many communities are experiencing an increase in thefts of metal including cemetery ornaments, plumbing pipe, gutters, and even manhole covers.
The Rolls-Royce brand is most firmly associated with ultra-luxury cars, but its engineering wing, Rolls-Royce plc, is also actually the second-largest maker of airplane engines in the world. Now, the company is diversifying even further, with plans to set up a full-fledged nuclear division to "manufacture equipment and provide advice to governments on their atomic energy programs."
Rolls-Royce has been supplying safety instrumentation and control technology to France's nuclear reactors for some time now, and it also has nuclear clients in the United States, China, and the Czech Republic -- creating a separate nuclear division is likely part marketing and part expansion. Since the company projects an almost 70 percent increase in the value of the civil nuclear industry by 2023, it's no surprise that it would try to leverage its unique skills and experience to cash in on the purported "nuclear renaissance."
It is surprising that the article explicitly mentions decommissioning (of aging nuclear plants) and cleanup (of plants and other nuclear sites) as potential moneymakers. Companies that deal in nuclear reactors and related products usually focus on the potential for profit in new nuclear plants and a large expansion in the use of nuclear power. Decommissioning and cleanup will become increasingly prominent issues as the world's current nuclear fleet ages, and often responsibility for such problems is laid at the government's doorstep.
Hopefully, more private entities will see fit to focus on concerns like these in the future -- and if we must have new nuclear power plants, we might as well make them Rolls-Royces.
Having apparently run out of farms to subsidize, the EU is sending some spare 1 billion Euros to Africa to help farmers there cope with food shortages and rising prices. The funds were an unused portion of the EU's agriculture budget, which is worth about 120 billion euros -- more than 40 percent of the EU's annual expenditures.
European Commission spokesman Johannes Laitenberge says the "crisis" in food supply helped spur the EU into action:
There's a fairly broad consensus on the need to act here, given the crisis which is taking place," he said. "In the Commission's opinion, this is the most efficient and most rapid instrument that could be used."
Pardon my cynicsm, but wouldn't the best thing for African farmers be for the EU to eliminate its 120 billion in farm subsidies altogether?
UPDATE: My colleague Preeti reminds me that at least the EU is finally spending more on economic growth and employment programs than farm subsidies:
America's finest news source nails it:
WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.
For more sober thoughts on the financial crisis, check out FP's Seven Questions with William Poole. A recently retired president of the Federal Reserve Bank of St. Louis, Poole has been more prescient than most about America's current economic predicament.
The Japanese fishing industry is in dire straits, the LA Times reports:
If we lose our fishing industry, we Japanese will face a food crisis," said Masahiko Ariji, a fishery specialist at the Amita Institute for Sustainable Economics in Kyoto. About two-thirds of the nation's fishing groups were in the red last year, he said. With fuel prices higher this year, some "are about to collapse." [...]
If fuel prices keep rising, as many as 20% of Japan's fishing companies will close and 85,000 fishermen could leave the industry, the National Federation of Fisheries Cooperative Assns said. The fish catch, it says, could fall by almost half.
On balance, the fact that the Japanese fishing industry is suffering isn't necessarily a bad thing. If the trend keeps up, high gas prices might end up saving Pacific fisheries from imminent doom where regulation and conservation have failed. Add this one to the list.
Today's Washington Post A1 on Saudi Arabia contains an interesting nugget on how economic transformation may force the repressive government to open up, if only just a bit:
Saudi officials said they are working on easing the lifestyle and visa restrictions that have kept foreigners from investing and living in the kingdom. One side effect of that will probably be an easing of rules that ban men and women from mingling in public unless they are close relatives.
"We're not anymore an isolated island. We realize the challenge today in order for us to be more competitive means more transparency and more gender equality," said Abdullah Hameedadin, head of the Economic Cities Agency at the Saudi Arabian General Investment Authority, the government body overseeing the projects.
Globalization at work?
I thoroughly enjoyed John McCain's response to the recent remarks of retired Sen. Phil Gramm, his top economic advisor. Gramm told the Washington Times earlier this week that the United States' current economic troubles represent "a mental recession" and that America had become "a nation of whiners."
Gramm later said that he meant that U.S. politicians were the whiners, not regular Americans who are choking on high gas prices and a weak job market.
As you might imagine, McCain rushed to distance himself from Gramm's comments:
I think Sen. Gramm would be in serious consideration for ambassador to Belarus," McCain said with a broad smile. "Though I'm not sure the citizens of Minsk would welcome that."
For the record, the current American ambassador to Belarus is Karen Brevard Stewart, a career foreign service officer. Her most exciting moment in office? Temporarily vacating the embassy in March after Belorussian officials essentially kicked her out of the country.
The Belorussian ambassador in Washington could not be reached for comment on McCain's joke today.
As the "elite 8" wrapped up an 18-course dinner in Hokkaido earlier this week, members of the developing countries summit, or "D-8," were also focusing on food -- or rather, the lack of it. Leaders of member nations Indonesia and Malaysia spoke out Wednesday about the need to curb biofuel production. Indonesian Prime Minister Susilo Bambang Yudhoyono was blunt:
The idea is to reduce greenhouse gases and to wean themselves away from dependence on fossil fuels... It is not a good idea: it has only worsened the global food crisis."
Yudhoyono knows a thing or two about this problem firsthand. Indonesia has lost vast swathes of rainforests due to the production of palm oil, an increasingly popular biofuel. But while a little hypocrisy might make his words ring hollow, it doesn't make him wrong.
As FP's own Editor in Chief Moisés Naím tells us, increased food demand from developing countries is hardly to blame for the global food crisis. The real culprit is biofuel production, he aruges, and the government policies that promote it at the expense of crops for human consumption. Biofuels may account for as much as 75 percent of the global increase in food prices since 2002, according to the latest World Bank estimate.
The G-8, to its credit, had something to say about the crisis. Problem is, as usual the group didn't address the real policy problem -- it only "requested" that developed countries open their food stockpiles. Quick fixes, though, aren't going to feed the hungry for long. G-8 countries need to brainstorm feasible, long-term policies. Here's a healthy start: Stop dumping millions of dollars into subsidizing biofuels before this man-made disaster spins out of control.
A presidential candidate's usual fake deficit-reduction plan involves promises to "crack down on tax loopholes" and the like. Witness Barack Obama's pledge to "end wasteful government spending" and "make government more accountable and efficient." Good luck with that, Barack. As any student of the federal budget knows, such savings rarely materialize or are much smaller than claimed.
But John McCain's vow to balance the federal budget by the end of his first term takes the cake. Take a gander at how he plans to pull off this feat:
The McCain administration would reserve all savings from victory in the Iraq and Afghanistan operations in the fight against Islamic extremists for reducing the deficit. Since all their costs were financed with deficit spending, all their savings must go to deficit reduction."
Given today's news that Iraq is considering imposing a timetable for withdrawal on U.S. troops, McCain may get his "victory" there sooner than he imagines.
But Afghanistan? That's another story. As the Washington Post notes, there were more Western troop deaths in Afghanistan in May and June than there were in Iraq. The Taliban has proven in recent weeks that it can threaten Kabul and Kandahar, while slinking back across the border to safe havens in Pakistan. What's McCain's plan for turning this situation around quickly? Imagine telling your mortgage lender: "My plan to pay off this debt in four years is to get a new job that pays me a million dollars a year." Sure, it could happen. But I doubt the bank would be impressed by the proposal.
The politics of pushing a deficit-reduction plan right now are odd, too. Has there been any public clamor for such a thing? With
gas prices soaring, the job market tanking, and the cost of everything
going up, are Americans really worried about the budget deficit
right now? I fail to see the political payoff here. Time to bring in some new talent?
Which economists, journalists, and business leaders are doing the best job of advancing free markets and free people? You can make your opinions known by voting for nominees for the Free Market Hall of Fame.
At this year's FreedomFest—which describes itself as the world's largest annual gathering of free minds and is the brainchild of contrarian economist Mark Skousen—the first five members of the Free Market Hall of Fame will be inducted at a July 12 gala banquet in Las Vegas. Unlike with FP's top public intellectuals poll, however, the nominees receiving the highest vote counts won't necessarily make it into the Hall of Fame. Rather, "[a] select group of economists and other free-market supporters will make the final decision and vote on upcoming Hall of Fame members," according to the hall's Web site. I guess the Hall of Fame isn't ready to surrender the commanding heights to the tyranny of the Internet majority.Meanwhile, I recommend voting for Andrew Carnegie for question 6: "Vote for your favorite free market business leader and entrepreneur (past)." Without this industrialist and philanthropist, FP's publisher, the Carnegie Endowment for International Peace, wouldn't be here!
The Wall Street Journal has the scoop: the German factory that has been supplying half of Mugabe's banknotes is cutting him off:
The notes, which have allowed Mr. Mugabe to pay his soldiers and other loyalists, are produced by Giesecke & Devrient GmbH, a secretive, family-owned Bavarian company that once made its money churning out worthless cash in the 1920s for the doomed Weimar Republic.
On Friday, the German government ordered Giesecke & Devrient to desist, and today the company complied. Giesecke & Devrient, one of two suppliers of Zimbabwe, is the world's second-largest printer of banknotes, and it has a history of working with odious regimes (Hitler, Franco, and Ian Smith of Rhodesia, to name a few). The company had been providing blank notes, and the central bank in Harare was adding all the zeroes.
If Mugabe had any sense, he'd seize this opportunity to tame his country's hyperinflation by taking currency out of the economy. But as Johns Hopkins University economist Steve H. Hanke tells the WSJ, Zimbabwe's central bank is more likely to find a workaround, and keep churning out those bills.
Some may say it was done for profit, but there is a certain cultural je-ne-sais-quoi about the return of the franc for the village of Collobrières.
The town of 1,600, nestled deep in Provence, has re-allowed the use of its country's former currency for everyday purchases, prompting citizens to turn out in droves with fistfuls of francs. Baker Nathalie Lepeltier, who came up with the idea, claims it will convince her fellow townspeople to spend more:
The euro has made life more expensive; prices are much higher... people have lost the concept of the value of money with the euro."
That's a questionable claim, but the franc's reintroduction has helped the villagers of Collobrières strengthen one value -- their French identity. The French public has long shown aversion to EU membership, most notably in 2005 when the country voted "non" on the EU constitution. Now, poised to take the EU presidency tomorrow, the French government has promised a "citizen-centered" approach and to "reconcile Europe with French citizens" during its tenure. Bonne chance: 63 percent of French citizens polled earlier this year do not think that the French presidency will bring Europe closer to the French population.
It'll be especially tough to convince villages like Collobrières, where national and local identity often reign supreme. Some of those interviewed from the town knew nothing about the Lisbon Treaty, the set of EU institutional reforms that Ireland rejected earlier in June. But Collobrières' citizens don't have to know much about global affairs to feel their impact -- inflation has heavily impacted the franc's value. Says Lepeltier:
People remember the price in francs, and they're shocked now when they use francs at how much more everything costs."
At the Claude Taylor Photography Gallery, just a short stroll from FP's office at Dupont Circle in Washington, you don't need dollars if you want to buy a print. Just hand over your euros -- each gets you $1.50, according to this sign in the window. The studio began accepting euros in March, owner Claude Taylor told the Washington Post, citing his perception of increased numbers of European tourists due to the weak dollar. The phenomenon isn't limited to Washington. Some stores in New York have also been accepting euros.
Meanwhile, also in the Washington area, guess who's buying SUVs in this era of record-high oil prices? Europeans. With the weak dollar, they can import jumbo vehicles at teeny prices.
If you're a struggling American newspaper trying to maintain quality and improve local coverage, what's one possible solution?
Outsource to India, says the deputy editor of the Orange County Register, California's fifth-largest newspaper. On a one-month trial basis, Mindworks Global Media, an India-based company, will copy-edit some of the Register's stories and lay out pages for a community newspaper at the same company that owns the Register.
This isn't the first time an American news outlet has outsourced to India. Last year, Passport blogged about a Pasadena, California, news Web site that hired Indian journalists to cover meetings of the Pasadena City Council, which are broadcast over the Internet.
There are bound to be some hiccups and gaffes along the way, but it could work better than expected. Mindworks says on its Web site that its workers are "trained thoroughly to become familiar with the client publication and the region," and some employees are bound to have been educated at American universities. And perhaps articles about India and other countries will include more nuance and context.
For American editors and reporters, increased outsourcing is understandably scary. But what if it's key to fundamentally reinventing newspapers, whose U.S. circulation and advertising revenue have been plummeting? Those of us who work in journalism will have to up our game and make ourselves relevant. It's creative destruction at work.
This is heartbreaking: Times have gotten so tough in Indonesia that parents have been sending their children to live in orphanages, where they can at least get food and an education. A 2006 government survey found that 80 percent of children in orphanages have two living parents. Orphanages say that, this year, even more parents have been giving up their children, according to a recent CNN article.
Jeff Rubin, chief economist at CIBC World Markets, a top Canadian investment bank, has put together a fascinating PowerPoint presentation (ppt) on "The Age of Scarcity." Here's one slide that illustrates the astonishing rate at which the world is decreasing its reliance on the U.S. economy:
(Hat tip: Paul Kedrosky)
Much has been made about the close ties between U.S. President George W. Bush and the ruling family of Saudi Arabia. But recent comments by Saudi King Abdullah regarding the recent rise of oil prices sound less like Bush and more like a certain other politician:
The king spoke of the "selfish interests" of speculators as a primary reason and urged the gathered ministers to "rule out biased rumors" and to "reach the real causes for the increase in price."
For the past years, our energy policy in this country has been simply to let the special interests have their way -- opening up loopholes for the oil companies and speculators so that they could reap record profits while the rest of us pay four dollars a gallon."
That was Barack Obama on Sunday. It looks like even if the Democrats win in November, the White House and the House of Saud will still get along just fine.
Felix Salmon checks in on the inflation rate in Zimbabwe:
Comparing Old Mutual's share price in London and Harare, Josh Giersch concludes that there are now 35 billion Zimbabwean dollars to one US dollar - up from a mere 17 billion on Friday. Which would put annualized inflation, he says (I haven't checked his math) at 430,000,000,000,000,000,000,000,000,000,000,000,000%. May as well just round it up to the nearest billion quadrillion quadrillion, at this rate.
Officially, the central bank still lists annual inflation as 100,580.2 percent, and another official estimate from February has it at 165,000 percent. Other market estimates put it at 1.7 million or higher.
Via World Politics Review and 2point6billion comes this story from the Times of India about Mumbai's mysterious manhole shortage. It seems that in the last few months, over 1,500 manhole covers have been stolen from the city and surrounding region by organized gangs, with predictable consequences for sanitation and safety.
Who's the culprit? According to local authorities, it's China, where massive Olympic construction projects have driven up the global prices for iron ore. The municipality bought the covers for about $80 and they're now selling on the black market for about $130.
A senior official said that he/she had also heard of thefts being reported in Europe and North America. Just to bring things full circle, many of those covers were also probably manufactured in India.
Housing prices may have some folks running for shelter, but that doesn't mean everyone has given up on the U.S. real estate market. Hotpads, an online real estate and housing search engine, has created a set of "Rent Ratio Heat maps," which show nationwide relationships between renting prices and purchasing prices. These handy maps show you where you should rent and where you should buy.
Take a look at their map of Washington, D.C. below:
The formula is pretty simple. Areas marked with red grids tell you where to rent, while blue areas (where the ratio is lower) tell you where it makes more sense to buy. You can also see examples of average rental costs.
I see that some in the U.S. Congress are gearing up to crack down on "speculators" accused of driving up prices for key commodities like oil and corn. Connecticut Sen. Joseph Lieberman is seeking to ban institutional investors from investing in commodities markets at all, and his colleague, Michigan Sen. Carl Levin, is urging the Commodity Futures Trading Commission, which regulates commodities trading in the United States, to take action.
As Diana Henriques explains for the Times, there's a risk the proposed cure would be worse than the disease. Not only is it tough to identify who is engaging in "excessive speculation" versus merely "speculation," it's also completely legal to try to make money from trading commodities. What's more, some analysts argue that speculators actually make the markets function more smoothly by keeping them liquid. (Here's an example of one such argument.)
There's also a fierce debate about to what extent speculators are, in fact, to blame for the high prices. Fatih Birol, chief economist at the International Energy Agency, put the matter thusly in a recent interview:
I believe the main reason for the high prices [is] the growing perception in the markets that the growing demand growth may not be met by the supply growth. And this provides fertile ground for the speculators... [T]he main issue here is the fundamentals but the speculators play an amplifying role in that respect.
The Financial Times provides some support for this view today:
Refiners are paying record premiums for the high-quality crude oil they use to produce diesel and petrol, a sign of strong demand in the physical oil market that calls into question claims that soaring oil prices are being driven by speculators.
Refiners are paying up to $5-$6 a barrel on top of current record prices to secure high-grade oil, traders said, double the level of a year ago. The mark-ups are four times higher than the 2000-2008 average. The movement in prices paid for physical barrels of oil has gone largely undetected outside the refinery industry because financial markets pay almost exclusive attention to the price of oil futures traded in London and New York.
Are you reading too much Drudge and freaking out about the potential sale of Anheuser-Busch to a European beverage conglomerate?
Perhaps you haven't been paying attention. FP Editor in Chief Moisés Naím has been predicting this moment for months:
Everything from corporate behemoths to family-owned companies are about to come to America on a corporate buying spree. Call it the Euroinvasion. Not only will many U.S. companies now have European owners, but the American marketplace will witness an infusion of new foreign competitors that will manufacture their products in the United States. They will use their new American base both to export to the world—including back to their own European market—and to serve the U.S. market from inside its borders. Such a trans-Atlantic shift will have an enormous impact on Europe's levels of employment and exports. Inevitably, the move will also ignite a political firestorm on both sides of the Atlantic. European politicians will denounce the companies for "exporting jobs" to America, while U.S. politicians, already rattled by the threat of foreign competition, will be infuriated by what they will brand as "the foreign takeover of America." CNN anchor Lou Dobbs will be foaming at the mouth.
Why is this happening now? The plummeting U.S. dollar has made the move across the Atlantic affordable for many European companies. And this may be a once-in-a-lifetime chance to relocate: American companies have rarely been so cheap. Five years ago, a German or Spanish company that coveted a U.S. competitor worth $500 million needed roughly 430 million euros to purchase it. Today, it would take just 316 million euros to buy a company worth half a billion dollars.
Read the whole thing, and let us know if you catch any vintage Lou Dobbs moments.
At a Commonwealth heads of state meeting in London this week, Uganda's President Yowari Museveni declared that he is "happy" about the world food crisis:
Why? Because we produce a lot of food... we are stuck with food."
The country's rice production has risen dramatically in the past few years, due in part to the government's imposition of heavy duties on imported rice. Uganda also just sealed a deal with an Indian processor plant, which now imports the African country's excess milk supply.
But Museveni has plenty of international trade and subsidy battles to fight if he hopes to turn the global food crisis to Uganda's advantage. He even admitted that 40 percent of bananas produced in the country go bad. Meanwhile, millions of people in Africa and across the world continue to starve.
And apparently the Ugandan president also missed the memo about the ongoing famine in his country's Karamoja region, which has been devastated by years of conflict.
[Nintendo] also is shrewdly maximizing its profit by sending four times as many units to Europe, reaping the benefits of the strong euro, said Michael Pachter, an analyst with Wedbush Morgan Securities. Pachter estimated that Nintendo shipped just 500,000 copies of the game in North America but as many as 2 million units to Europe. "The shortage demonstrates one consequence of the weak dollar. We're seeing companies ignore their largest market simply because they can make a greater profit elsewhere," Pachter said.
With the iPhone going global today, this Nintendo story leads me to wonder if we aren't eventually going to be seeing a similar calculus from Apple. Why keep your inventories high in the United States if you can bank more cash elsewhere? (The potential difference, of course, being that Nintendo is a Japanese company and Apple is American.)
(Hat tip: Slashdot)
The summer gas-tax holiday is back, and John McCain thinks he may have a winning issue:
Along with Barack Obama, many economists largely dismissed the notion of a gas tax holiday as a political ruse that would do little to lower prices, but McCain has repeatedly said he does not believe the proposal would be a panacea for America's energy woes. [...] Instead, McCain argued, low-income families could save some extra cash to pay for their children's school supplies this fall, or perhaps treat themselves to a nice dinner.
I'm no mathematician, but let's do some quick number-crunching here. Suppose you buy a tank of gas each week and your car holds 15 gallons. The 18.4-cent a gallon gas tax will cost you $2.76 each week. There are 12 weeks left until Labor Day, the end of summer. That means a typical person would save $33. If you're a childless couple living in Falls Church, VA, that might buy you dinner at the Olive Garden -- where the Chicken Alfredo will run you a cool $13.50 -- but no wine.
It's easy to identify a global crisis, but much more difficult to resolve it when all parties act exclusively in their own self-interest.
At the U.N. food summit in Rome, heads of state and other global leaders met today to address skyrocketing global food costs. Among those in attendence? Zimbabwe's President-for-life Robert Mugabe, who should know a thing or two about food crises.
There was little disagreement about how to resolve the spiraling costs of food and its impact on the world’s poor: more food aid to feed the world's hungry, additional seeds and fertilizer for poor farmers, fewer export bans and tariffs that restrict the flow of trade, and more research to improve crop yields.
Unsurprisingly, there was strong disagreement over the key causes of rising global food prices, particularly with regard to the so-called food vs. fuel argument.
When developing countries blamed shortages on the transferring of crops from food to biofuels, leaders of countries investing heavily in ethanol and biolfuel production, notably Brazilian President Luiz Inacio Lula da Silva, fired back:
Biofuels are not the villain menacing food security in poor countries ... It offends me to see fingers pointed against clean biofuels -- fingers tainted with oil and coal."
The debates on farm subsidies for biofuel production is unlikely to end anytime soon. Then again, with gas prices at $4 a gallon, I'd say you can safely bet that biofuels -- subsidized or no -- are here to stay.
For years, General Motors racked up huge profits on monster SUVs, watching disdainfully as other automakers focused on smaller vehicles and hybrid cars. Well, they ain't laughing at the Renaissance Center anymore. GM today announced the closure of four truck plants, and CEO Rick Wagoner told reporters the Hummer might have to go, too:
[W]e're considering all options from a complete revamp to a partial or complete sale of the brand,'' Wagoner said.
But what company would want to associate itself with the Hummer brand now?
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