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Posts Tagged ‘Morgan Stanley

The mad reign of the killer bankers

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Pretty charts by the IMF which make no sense to the newly impoverished in developing countries. After three years of G20 meetings to produce a new 'global harmony', the system is still intact: a mixture of deregulation, princely rewards for the brains behind 'financial innovations' and destruction paid for by state and taxpayer.

In the 2011 May issue of Le Monde Diplomatique, the comment ‘Immune and all-powerful’ by vetern observer of 20th century absurdity, Serge Halimi, is short, blunt and a new indictment of the global financial mafia. This mafia is represented on governments by its criminals-in-chief: Goldman Sachs, Morgan Stanley and J P Morgan. There are more such criminals-in-chief of course, and some are regional (in Russia, China, India, Brazil) as they preside over the movements of capital and the passing of legislation to disempower, impoverish and enslave tens of millions around the developing world.

It is in the interests of these folk, the humble wage earners in field and in the slums, that Halimi has written this cameo. He has pointed out that the International Monetary Fund has just admitted that “nearly four years after the start of the global financial crisis, confidence in the stability of the banking system as a whole has yet to be fully restored”. He then quotes US Federal Reserve chairman Ben Bernanke who described it as “the worst financial crisis in global history, including the Great Depression” but has reminded us that no-one in the US (or in its client and comprador countries for that matter) has been charged with any crime. [Bernanke was quoted by Jeff Madrick in “The Wall Street Leviathan”, The New York Review of Books, New York, 28 April 2011.]

Goldman Sachs, Morgan Stanley and J P Morgan all stood to gain by the collapse of the high-risk investments they warmly recommended to their clients. They got off with a fine at worst; more often they got a bonus. In fact Halimi is needlessly polite, for the criminals-in-chief have not only got off with bonuses, they have continued to be permitted to ply their destructive trade in developing countries and in the commodity trading arenas.

Eight hundred bankers were prosecuted and jailed after the fraud-related US Savings and Loans failures in the late 1980s, said Halimi. “Now the power of the banks, increased and concentrated by restructuring, is so great that they seem immune to prosecution in any state impeded by public debt. Future White House candidates, including Barack Obama, are already begging Goldman Sachs to fund their election campaigns; the head of BNP Paribas has threatened European governments with a credit squeeze if they make any serious attempt to regulate the banks; Standard & Poor’s, the agency that awarded its highest rating of AAA to Enron, Lehman Brothers, Bear Stearns and many junk bonds, plans to downgrade the US rating if Washington fails to deliver public spending cuts.”

What the IMF calls the World Economic Outlook, this is the 2011 April issue, as inconsequential as the last.

So, it is not only immunity. The criminals-in-chief are revealed as actually dictating social policy to the countries of the developed world. In France, the Socialists complain that “governments devoted more resources to rescuing the banks and financial institutions in the year after the subprime crisis than the world spent on aid to third world countries over 50 years” [this was in L’hebdo des socialistes, 16 April 2011].

But the remedies they propose are pathetic (a 15% bank surcharge) or pious hopes (abolish tax havens, establish a public rating agency, tax financial transactions), which rely on unlikely “joint action by the member states of the European Union”.

What should have been a crisis too far came to nothing, Halimi has concluded. He has quoted Andrew Cheng, chief adviser to the China Banking Regulatory Commission, as having said that this passive attitude is connected to a “capture problem”, which is states in thrall to their financial system [“Big Winners in Crises: the Banks”, International Herald Tribune, 13 April 2011]. Too often political leaders behave like bankers’ puppets, anxious not to spoil the party. I would have expected Monde Diplo to show some teeth here, for this is in most democracies called treason, and the punishment must match the crime.

Food inflation in Asia and India, and a word about price indexes

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Vendors in Mapusa, Goa

Vendors in Mapusa, Goa. The middle basket contains 'nachne', local millet

 

The question in Asia again is food inflation. Entering the last quarter of 2010, news reports from South and South-East Asia cite continuing high food inflation as a persistent worry for consumers. The food weighting in Asia’s consumer price indexes is mostly high. China, India, Indonesia and Thailand have CPI weightings of 33%-46% for food.

Hence, persistently higher food prices pose a bigger risk of a rise in inflation expectations and wages in these countries as compared with higher per capita income economies on a relative basis, says the late September Global Economic Forum briefing from Morgan Stanley. “While job growth was affected by the latest global financial crisis, with GDP growth back to trend line and employment levels having recovered sharply, the risk of a rise in inflation expectations is significant. While employment statistics in the region are not very transparent, given the GDP growth trend, it appears that employment growth should have been strong.”

China, India and Indonesia together account for 40% of the global population. Any small increase in demand from these countries in the form of imports tends to push up global prices. The recent crop failure in India and its attempt to import sugar are a case in point. Moreover, there are some crops that are peculiar to local markets with very little global supply. For instance, in the case of India last year, the country fell short of pulses (lentils), and it was not really possible to import the crop even if the government had wanted to. Indeed, the top four (in terms of population) countries in the region (China, India, Indonesia and Thailand) are all net exporters of food items. All four countries tend to maintain inventories for staple items like rice and wheat, and have public distribution systems to ensure availability of these essential items at a reasonable price. Most countries in the region subsidise food for the poor.

Against this background, two recent speeches from senior figures in India’s central bank, the Reserve Bank of India, are worth examining closely. First, in ‘Managing the Growth-Inflation Balance in India: Current Considerations and Long-term Perspectives’ the deputy governor of the RBI Dr Subir Gokarn talks directly about food inflation (he gave the speech on 05 October 2010 at The Private Equity International India Forum).

“The inflation rate, which was briefly negative in the middle of 2009, began to accelerate rapidly later in the year. This upward momentum continued into the first half of 2010, with double-digit inflation persisting for a few months. The rapidity of the transition was surprising, given the fact that the recovery in growth was just getting under way and, importantly, the global situation was still very uncertain. However, the reason for the sharp increase was that all the possible drivers of inflation were simultaneously contributing. Each one by itself may not have resulted in the outcome that we saw, but all three working together resulted in a rather sharp acceleration. Food prices rose sharply because the monsoon of 2009 was deficient in most parts of the country, impacting agricultural production. However, there are, I believe, longer term forces at work on food prices, which are a matter of concern.”

 

UN Millennium Development Goals Report 2010 / UNICEF Photo

UN Millennium Development Goals Report 2010 / UNICEF Photo

 

Next, in a speech titled ‘Perspectives on Inflation in India’, executive director of the RBI, Deepak Mohanty (on 28 September 2010 at the Bankers Club, Chennai) said that the Reserve Bank is concerned over “the unacceptably high inflation rate”. Mohanty dwelt awhile on the Indian government’s new wholesale price index series.

“In the meanwhile, the Government has also released the new series on the Wholesale Price Index (WPI) changing the base year from 1993-94 to 2004-05. In terms of change in the relative weight of major commodity groups, the share of primary articles has gone down by 1.9 percentage points, which has been compensated by increase in the share of fuel group by about 0.7 percentage point and manufactured products by 1.2 percentage points. There has been a reduction in weightage of primary food articles and manufactured food products by 2.6 percentage points in the new series to 24.3 per cent from about 26.9 per cent in the old series.”

“Second, notwithstanding a significant reduction in weightage, the food inflation in the new series is higher than in the old series. This is because of change in the consumption basket in favour of protein-rich items such as egg, meat and fish where price rise has been high apart from milk and pulses. Third, the non-food manufactured products inflation is lower in the new series than in the old series. This is because of a substantial overhauling of the basket with the introduction of a number of new items. For example, the new series has 417 new commodities of which 406 are new manufactured products. Fourth, the new series has wider coverage. For example, the number of price quotations has increased from 1,918 in the old series to 5,482 in the new series. The new series, therefore, is better representative of overall commodity price inflation.”

What is curious is that these trends have taken place during a phase of rapid growth in India’s formal economy. Gokarn explained that what was most significant from the monetary policy perspective was the growing visibility of demand-side pressures. He examined the price dynamics of the manufacturing sector – overall and without the food processing component. The latter, he said, has been used by many analysts as a reasonable proxy of demand-side inflation, which is the phenomenon that monetary policy can and should influence. Both sectors he said, and particularly non-food manufacturing inflation, “show a tremendous acceleration from a significantly negative rate of inflation during 2009 to reach rather worrisome levels by the middle of 2010”.

Mohanty finds that the new series of WPI inflation marks a major change in terms of scope and coverage of commodities and is more representative of the underlying economic structure. As per the new series, the manufactured products inflation is lower than what was seen on the basis of the old series, he said. The food price inflation, on the other hand, is higher than what was seen on the basis of the old series. “The high level of food prices is The 100th postindeed a matter of concern as the prices of protein-based items, which have a higher share in the consumption basket, are showing larger increases”. Moreover, Mohanty said, there is continuing shortage of food items such as pulses and edible oils. “If the supply response doesn’t improve, there is a risk that food price inflation could acquire a structural character”.