Stability breeds instability. That is the economic and financial paradox that lies behind the recent ups and downs in the financial markets.
Here in the UK we have lost count of the number of times Chancellor of the Exchequer Gordon Brown has boasted about his policies of economic "stability." There was a famous British gardener several centuries ago called Capability Brown, and our chancellor would no doubt like to go down in history as Stability Brown.
Capability Brown was no ordinary gardener -- at the very least he liked a country estate on which to apply his skills. And Gordon Brown is no ordinary chancellor. One minute he is bringing stability to the UK, the next he is trying to bring stability to Africa, on a lightning tour with U2's Bono.
Just by chance, the biggest fall in the London stock market for years took place while Brown was away in Africa. Like TS Eliot's Macavity, the chancellor always seems to be away from the scene at embarrassing moments.
And when stock market declines hit the front pages, you can be sure people are worried. "Stocks can go down as well as up" is the warning financial institutions issue in the smallest of small print when trying to lay their hands on your money.
Both for the layperson and the expert recent events have been confusing. One day the markets seem to be collapsing, the next they recover. But behind all this we may well be witnessing the end of a long bull market, that has produced classic business-cycle excesses.
When examined, the concept of stability as employed by the likes of Gordon Brown refers to stable inflation and stable public finances. No crises, no "boom and bust" -- just steady economic growth and low unemployment.
The problem is that reasonably stable inflation, as measured by the average price of the goods and services we buy, has been accompanied in recent years by huge increases in the prices of assets, both physical (real estate) and financial (shares quoted on the stock market). Low interest rates encourage excessive borrowing and the rise in property prices (used as security for extra borrowing), both in the US and UK, has nurtured the feeling of wellbeing reflected in the stock market. Other classic signs of excess have been seen in the way the speculative boom has spread to commodity markets.
One of the greatest authorities on financial markets in the world is William White, chief economist at the Bank for International Settlements in Basle, Switzerland (the "central bankers" bank). After the inflationary decades of the 1970s and 1980s the view became fashionable in certain circles that all economic policy makers needed to do was to provide an atmosphere of stable inflation, and everything would be fine and dandy. But White concludes in a recent paper ("Is Price Stability Enough?") that "we now have a liberalized financial system which seems much more likely to show boom-bust characteristics than the previously repressed one."
The average person sees the excesses of a liberalized financial system in the almost daily invitations from banks that drop through the letter box urging him or her to borrow more. In the financial markets there is all manner of what is known as "financial engineering" with various exotic labels, which all boil down to the attempt to make a fast buck, preferably with other people's money.
The most notable example of this in recent years has been the prominence of what financial marketeers call "the carry trade" -- borrowing at interest rates close to zero in Japan, and "investing" at higher rates in economies as far apart as Iceland and New Zealand.
The cheap rates were available in Tokyo because the Japanese central bank was trying to help the economy emerge from a prolonged recession (or "bust") that had -- you've guessed it -- followed a boom in the 1980s. But when the speculators decided enough was enough, and began withdrawing their funds from these relatively small economies, it provided a nasty jolt.
The latest panic in world markets is associated with fears that inflation is creeping up in the US and the Federal Reserve may have to raise interest rates to the point where the bubble finally bursts.
It is well known that when the US economy sneezes the rest of the world traditionally catches a cold. But if you want words of comfort from a practitioner of the gloomy science I refer you the comments the Organization for Economic Cooperation and Development's chief economist Jean-Philippe Cotis made last week.
Asked about the current turmoil in the markets, he replied: "I don't find it worrying as such. It will be a bit more lively, with more fluctuations, but it may just be a return to normality."
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry