Thanks to www.beearly.com for this article from the Globe and Mail. Former Fed Chairman Paul Volker has strong words for the current Fed regime.
J
THE BUY SIDE: POLITICS
AVNER MANDELMAN
APRIL 12, 2008
A few days ago an unusual event took place: Paul Volcker, the mythical U.S. Federal Reserve Board chairman from the Reagan years, criticized the policy of the current Fed chairman, Ben Bernanke, in a speech to the Economic Club of New York. Just so you grasp how extraordinary this was, you should first understand that normally a past Fed chairman scrupulously avoids saying anything at all about current Fed policy - for the simple reason that the current Fed chairman's words are one of his most important tools: They can sway markets.
This ability does not fade entirely when a Fed chairman leaves. So when a past Fed chairman speaks, his words can clash with those of the present one and make that one's job difficult. Out of professional courtesy, past Fed chairmen therefore keep quiet; Mr. Volcker especially - the man who hiked interest rates to 20 per cent to kill inflation, at the cost of a deep recession. But last week Mr. Volcker spoke his mind bluntly. He said, in effect, that the current Fed is not doing its job.
This would have been unusual enough. But Mr. Volcker went further. Not only is the Fed not doing its job, he said, but it is doing the wrong job: It is defending the economy and the market, instead of defending the dollar. And just to stick the knife in, Mr. Volcker added that this bad job now will make the real job - defending the greenback - much harder later. It'll cause even greater economic suffering.
In plain words, Mr. Volcker implied that the current Fed is not only incompetent, but that its actions are dangerous. There is no record of Mr. Bernanke's reaction, nor that of anyone else inside the Fed. But there was plenty of buzz in the market because what Mr. Volcker said amounted to a rousing call to raise interest rates. Yes, raise rates, and do it now.
Can you imagine what this would do to the market? I sure can, which brings me to the gap between physical economic reality as we witness it every day in our physical investigations, and the surreal market chatter we see and hear on TV. This gap has never been wider - but it will inevitably close as markets catch up to reality - as just forecast by former president Ronald Reagan's Fed chairman.
Let me cite three items, then go back to Mr. Volcker. First, commercial real estate. You surely have read about the residential real estate problems - subprime loans syndicated and resold, causing the implosion of several U.S. financial institutions. The writeoffs and damage here total close to a trillion dollars, said the IMF recently. That's about one-seventh of the U.S. gross domestic product, or more than three years of growth. But what of commercial real estate? I heard recently from some savvy private real estate investors that although commercial real estate fell by 20%, it should fall by a further 20 to 30 per cent before it provides a reasonable rate of return. So whatever economic damage was done to the economy by residential real estate speculation may eventually be equalled by commercial real estate. Say another 10th or seventh of GDP erased, or another two-three years of growth gone.
Second, there's also the war in Iraq. Some U.S. economists recently estimated it has cost about two trillion dollars to date - another two-sevenths of U.S. GDP. That's five more years of GDP growth gone.
And third, we haven't even begun to tally the private equity blowups that are surely coming. Taken all together, the economic damage spells a very bad and long recession. How to fix it? No problem, say the actions of Mr. Bernanke's Fed. Let's print the missing money - and it doesn't matter if it causes inflation and tanks the dollar. Because that's not our job.
Up to now Mr. Volcker kept quiet, but no more. In his speech he just said, in effect, that the recession is not the Fed's problem. It's the government's. The Fed's job is to defend the currency and fight inflation - exactly the opposite of what this Fed is doing. The solution? Raise interest rates, Mr. Volcker practically said, no matter the consequences now, because if you don't, you'll have to raise them even more later, with even more awful consequences.
Will rates indeed rise? I have no doubt they must. Not now, perhaps, but at the end of this year or the beginning of 2009, with a new president in the White House. The stock market, which usually looks six to nine months ahead, already understands this and may soon react. In fact, when Mr. Volcker's words sink in, the markets are likely to sink as this bear market rally ends. For surely you understand we are still in a bear market - and only in the beginning of it? Yes, we are experiencing a rally, and like most bear rallies, it is sharp and spiky. But when bear rallies end, they leave a lot of spiked bulls behind - and this rally should be no different. When it is over -in the next few weeks, methinks - the waterfall could continue, as the market begins to digest the inevitability of higher inflation and higher interest rates ahead.
Against all protocol, Mr. Volcker just went out on a limb and warned you of this. I urge you to heed his words.
Sunday, April 13, 2008
Friday, April 11, 2008
Yuan continues rise against the dollar
This aritcle on the Yuan's steady appreciation against the US dollar appeared in yesterday's IHT. Domestic inflation in China is rising steadily, while the it's central bank is being pressured to allow further appreciation. The rising Yuan's effect on the US dollar coulpled with the ECB's recent decision to freeze interest rates portends further weakness for the US dollar.
Dollar falls below 7 yuan for first time since 1993
By Lu JianxinReuters
Thursday, April 10, 2008
SHANGHAI: The dollar weakened and slipped below 7.00 yuan on Thursday for the first time in over a decade, underlining China's growing economic strength and its increasing use of the currency as a policy tool.
The central bank, which tightly controls the foreign exchange market, paved the way for the rise by fixing the yuan's daily mid-point, or reference rate, at a fresh high of 6.9920 before trade began. The yuan opened at 6.9920 against the dollar compared to 7.0017 at Wednesday's close. It was the first trade above 7.00 since China devalued the yuan to 8.7 from 5.8 at the start of 1994, creating a modern foreign exchange market.
"China is now under both international and domestic pressure for the yuan to appreciate at a fast pace," said Liu Dongliang, currency analyst at China Merchants Bank in Shenzhen. The Chinese central bank tightly controls the market through regulations and indirect intervention, and has limited the pace of yuan appreciation to support growth in China's exports.
But since July 2005, when the yuan was revalued and its peg to the dollar scrapped, its rise against the dollar has gained pace each year, from 2.6 percent in 2005 to 3.4 percent in 2006 and 6.9 percent in 2007. So far this year, it is up 4.5 percent. The acceleration is partly due to the weakness of the dollar in global markets, and to diplomatic pressure by China's major trading partners for faster appreciation to cut the huge Chinese trade surplus.
Last November, the central bank declared for the first time that it would use the exchange rate actively to fight inflation, which hit an 11-year high of 8.7 percent in February this year. That suggests China is gradually shifting toward managing its currency in the same way as developed economies, allowing big swings to cool the economy when it overheats and to stimulate it during slowdowns, analysts said.
"There now appears to be a clear understanding among the top leadership that sticking to a devalued currency is not good for the Chinese economy, including inflation," said a dealer at a top Chinese state-owned bank in Beijing. He declined to be named because he was not authorized to speak publicly to media.
Yuan appreciation has become especially important to restrain inflation since the start of this year as the central bank has partially loosened domestic monetary policy, flooding the money market with funds to ease financing problems at small companies.
Some foreign investment banks speculate that to prevent inflows into China of funds betting on continuous yuan appreciation, authorities may resort to another large, immediate revaluation of the currency.
But Chinese leaders have publicly ruled out such a step, and the onshore foreign exchange market believes it is highly unlikely because of the instability it could cause.
Instead, dealers said yuan appreciation will slow in the second half of this year as inflation eases and the central bank guards the economy against a slowdown in U.S. and global growth. While the strong yuan helps Chinese firms such as airlines and oil importers to reduce their overseas procurement costs, it is already hurting lower-end exporters such as clothing makers.
Reflecting expectations for yuan appreciation to slow later in 2008, one-year appreciation against the dollar implied by offshore forwards has dropped in recent weeks, to 11.2 percent on Thursday from a record 13.8 percent in mid-March.
Onshore dealers generally have predicted the yuan will appreciate 8.5 to 10 percent for all of this year. The yuan's strength is gradually making it an attractive store of value around the region. Yuan bank accounts in Hong Kong are expanding rapidly, and Chinese businessmen and tourists informally exchange the yuan around southeast Asia.
But for the yuan to become a major traded currency on the scale of the dollar or euro, China will need to remove capital controls and allow much greater market volatility- steps which remain many years away, analysts said.
Dollar falls below 7 yuan for first time since 1993
By Lu JianxinReuters
Thursday, April 10, 2008
SHANGHAI: The dollar weakened and slipped below 7.00 yuan on Thursday for the first time in over a decade, underlining China's growing economic strength and its increasing use of the currency as a policy tool.
The central bank, which tightly controls the foreign exchange market, paved the way for the rise by fixing the yuan's daily mid-point, or reference rate, at a fresh high of 6.9920 before trade began. The yuan opened at 6.9920 against the dollar compared to 7.0017 at Wednesday's close. It was the first trade above 7.00 since China devalued the yuan to 8.7 from 5.8 at the start of 1994, creating a modern foreign exchange market.
"China is now under both international and domestic pressure for the yuan to appreciate at a fast pace," said Liu Dongliang, currency analyst at China Merchants Bank in Shenzhen. The Chinese central bank tightly controls the market through regulations and indirect intervention, and has limited the pace of yuan appreciation to support growth in China's exports.
But since July 2005, when the yuan was revalued and its peg to the dollar scrapped, its rise against the dollar has gained pace each year, from 2.6 percent in 2005 to 3.4 percent in 2006 and 6.9 percent in 2007. So far this year, it is up 4.5 percent. The acceleration is partly due to the weakness of the dollar in global markets, and to diplomatic pressure by China's major trading partners for faster appreciation to cut the huge Chinese trade surplus.
Last November, the central bank declared for the first time that it would use the exchange rate actively to fight inflation, which hit an 11-year high of 8.7 percent in February this year. That suggests China is gradually shifting toward managing its currency in the same way as developed economies, allowing big swings to cool the economy when it overheats and to stimulate it during slowdowns, analysts said.
"There now appears to be a clear understanding among the top leadership that sticking to a devalued currency is not good for the Chinese economy, including inflation," said a dealer at a top Chinese state-owned bank in Beijing. He declined to be named because he was not authorized to speak publicly to media.
Yuan appreciation has become especially important to restrain inflation since the start of this year as the central bank has partially loosened domestic monetary policy, flooding the money market with funds to ease financing problems at small companies.
Some foreign investment banks speculate that to prevent inflows into China of funds betting on continuous yuan appreciation, authorities may resort to another large, immediate revaluation of the currency.
But Chinese leaders have publicly ruled out such a step, and the onshore foreign exchange market believes it is highly unlikely because of the instability it could cause.
Instead, dealers said yuan appreciation will slow in the second half of this year as inflation eases and the central bank guards the economy against a slowdown in U.S. and global growth. While the strong yuan helps Chinese firms such as airlines and oil importers to reduce their overseas procurement costs, it is already hurting lower-end exporters such as clothing makers.
Reflecting expectations for yuan appreciation to slow later in 2008, one-year appreciation against the dollar implied by offshore forwards has dropped in recent weeks, to 11.2 percent on Thursday from a record 13.8 percent in mid-March.
Onshore dealers generally have predicted the yuan will appreciate 8.5 to 10 percent for all of this year. The yuan's strength is gradually making it an attractive store of value around the region. Yuan bank accounts in Hong Kong are expanding rapidly, and Chinese businessmen and tourists informally exchange the yuan around southeast Asia.
But for the yuan to become a major traded currency on the scale of the dollar or euro, China will need to remove capital controls and allow much greater market volatility- steps which remain many years away, analysts said.
Thursday, April 10, 2008
Wednesday, April 9, 2008
Global Inflation continues
April 8th, 2008
BAT TRANG, Vietnam — The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China, and now increasingly places like Vietnam and India.
But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too.
“Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration. It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.
First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar. That puts American consumers in a double bind, paying at least some of producers’ higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries.
The cost of American imports from less industrialized countries as a group is rising. A Bureau of Labor Statistics index of average prices for imports of manufactured goods from such countries fell gradually through early 2004, but is now rising briskly and was up 5.6 percent in February from the same month last year. That contributes to rising inflation in the United States; in the 12 months through February 2008, the prices of goods for sale in the United States increased by 4 percent, according to the government’s Consumer Price Index.
But so far, Asian exporters have passed along only a portion of their costs. In China, for instance, prices are now rising almost 9 percent a year, triple the pace of a year ago. Workers in the developing world facing higher prices have been increasingly vocal in demanding higher wages, with protests erupting in recent days in Vietnam, Cambodia and Egypt.
At the same time, inflation keeps rising: the Philippines announced that its inflation at the consumer level had doubled in the last five months, showing a 6.4 percent increase in March over the same month a year ago. And weekly inflation at the wholesale level has accelerated in India, reaching an annual rate of 7 percent in the week ended March 22, up from 3.1 percent as recently as last October.
Not long ago, it would have been unlikely for a poor country with high inflation to see its money strengthen in value against the mighty dollar. But the dollar is not quite as mighty as it once was. Large American trade deficits and other problems have weakened its appeal. And there are signs that the dollar could fall further if developing countries’ central banks stopped supporting it, particularly in Asia.
Vietnam’s central bank even had to order the country’s commercial banks late last month to resume buying dollars within the tight range of exchange rates set by the government. Many banks had started betting on dollar depreciation and refusing to accept large sums in dollars, to the point that multinationals and exporters had trouble wiring money into the country to pay their employees’ salaries.
Inflation in Taiwan has started to creep up partly because the government waited until this year to allow the currency, the New Taiwan dollar, to appreciate. Taiwan imports all its oil, and only now is the slightly strengthening New Taiwan dollar starting to hold down the cost for consumers in filling up their gas tanks.Keeping the dong inexpensive in dollar terms helped Vietnam increase its exports by 24.1 percent last year, but also lured a flood of investment. Bank loans rose more than 50 percent last year, Breeding a real estate frenzy that has not yet abated.
In addition to the weak dollar, economists say that countries like Vietnam, Egypt, China and Brazil are inherently more vulnerable to inflation when, as now, rising prices are led by increasingly expensive commodities.Soaring food and energy costs have a far greater effect on developing countries like Vietnam, because of their large agricultural and energy-hungry manufacturing sectors, than on industrialized countries, which tend to have larger service sectors than manufacturing sectors.
But many developing countries, led by China and India, have blunted the full impact of inflation so far through a combination of price controls and subsidies, and more countries are joining them — Vietnam has imposed price controls on transportation and gasoline over the past week, for instance.As businesses figure out ways around price controls, like charging the same while shrinking the quantities in each package, and as the cost of subsidies may become unsustainably high, inflation may worsen.
propaganda for dummies finance edition
Propaganda for dummies- finance edition
1. openly question if there is a recession inviting all sorts of "experts" to give their impression.
2. keep the tone of the dialogue as an opened ended future event, so you pose questions like:
"could we be headed towards a recession?"
as opposed to:
"are we in a recession?"
ask "experts" questions like this:
"do you foresee a recession?"or "is a recession on the horizon?"
3. let experts answer but never ask it of known bears. if you do have a counter point man on hand like CNBC and FOX do when they have peter schiff on to induce a WWF style tit-for-tat debate.
4. provide doom and gloom estimates for jobs and earnings so that when they come out negative you can claim they weren't as bad as expected. suddenly losses become reasons for stock rallies.
5. at first cite strong employment data to support that we aren't in a recession.
when the data turns negative claim that the new paradigm of the economy shouldn't rely on outmoded stats that don't reflect reality.
6. when stocks are doing well, tell people the bears are crazy and are missing out on the bonanza.
when stocks are in the crapper tell people its bargain hunting season, and that stocks are "cheap" compared to their inflated prices of 6 months ago
7. use any sudden weekly drop in commodity stocks, especially gold to suggest the commodity run is over.
when bank stocks fall by as much, claim there is blood in the streets and its time to buy.
8. build false hype around important "low" points in the market. if indices breakdown below those lows, cite the stocks that are still strong and claim "its a stock picker's market"
9. if stocks bounce off a major low, claim the bottom is in right away and host experts who will speculate if the bottom is indeed in, (even if stocks have lost upwards of %40 of their value in 6 months and bear markets tend to take several quarters to years to play out.)
10. disseminate rumours that Warren Buffett is buying something. based on nothing but rumour or baseless speculation, lend false credibility to the spectacle by having commentators evaluate these proposed purchases by Buffett by saying things like:
"we've heard that Warren Buffett may be looking at railroads, what do you think is going on in his head right now?"
you create a story out of nothing by head-nodding experts who are always will to give their opinion on what they think other people may or may not be thinking.
11. feign impartiality by questioning politicians "strong dollar" policy remarks before transitioning into the familiar "could the US dollar fall farther if a recession is looming?"
12. have legitimate economists like Noriel Roubini discuss reality but place him outside of prime time and use awkward camera angles where they go way too close on his face. if you ever noticed his appearances on Canada's BNN or Fox sometimes you will notice this technique.
this gives the effect of an overbearing and unpalatable persona even if the person is giving reasoned commentary. people tend to respond better and find subjects more engaging if the person discussing it is visible from the shoulders up and not just a large face shot. its subtle and possibly nuts to suggest it but i wouldn't put it past anyone.
13. flood the newsreel with bad news at the same time as somewhat good news to distract people. federal bail outs seem like better news in comparison to UBS writing off billions.
14. use smoke screens to make things seem better, say things like:
"the markets have already priced in the write downs"
"the markets are forward looking"
"markets have over reacted to the credit problems, good companies went down with bad ones"
"lets not dwell on the past and move forward with the recovery"
"in this low interest rate environment, banks will be able to recapitalize while de-leverage at the same time in order to clean up the balance sheets and clear their books of undisclosed level 3 assets that were previously mark-to-model, so their impact on the forward P/E is in line with analyst estimates for Q4 of this year"
15. ensure banks don't issue "sell" ratings to stocks until they have bled themselves dry.
the fear of sell ratings are said to induce panic and could make things worse.
few mention that there could be fundamental reasons why these stocks should go down, instead just focus on the sheep herding effect of a sell rating.
16. talk up scandals within finance and politics to avoid the critical issues. Governor Spitzer's scandal the case in point.
17. ask experts the same question and compile the different answers until people have no idea what really happened as each expert gives a slightly different account of the story.
bear sterns bankrupt
bear sterns bail out
bear sterns bought by JPM
bear sterns on the brink of collapse
bear sterns facing derivative trouble
bear sterns forced margin call
bear sterns hedge fund implosions
bear sterns saved by JPM
bear sterns rescued by the fed and JPM
the fed loaned money to JPM to rescue bear sterns
JPM saved bear sterns with the help of the fed
JPM only bought bear sterns to get their clients
JPM is well capitalized in light of bear's assets
fed prevents a full scale disaster
credit markets saved in light of fed bail-out of bear sterns
18. take part in the plan to take the public's money to save the select few banking titans. all while telling them its other people's fault.
ill call it the "rouge trader" byline.
the rouge trader represents everything that the mass media wants us to believe about whats wrong with the markets. that men acting alone and in the worst interests of their clients funnelled millions away from respectable institutions.
if only the legal establishment could save us and persecute these dastardly rouge elements who are the scourge of industry.
1. openly question if there is a recession inviting all sorts of "experts" to give their impression.
2. keep the tone of the dialogue as an opened ended future event, so you pose questions like:
"could we be headed towards a recession?"
as opposed to:
"are we in a recession?"
ask "experts" questions like this:
"do you foresee a recession?"or "is a recession on the horizon?"
3. let experts answer but never ask it of known bears. if you do have a counter point man on hand like CNBC and FOX do when they have peter schiff on to induce a WWF style tit-for-tat debate.
4. provide doom and gloom estimates for jobs and earnings so that when they come out negative you can claim they weren't as bad as expected. suddenly losses become reasons for stock rallies.
5. at first cite strong employment data to support that we aren't in a recession.
when the data turns negative claim that the new paradigm of the economy shouldn't rely on outmoded stats that don't reflect reality.
6. when stocks are doing well, tell people the bears are crazy and are missing out on the bonanza.
when stocks are in the crapper tell people its bargain hunting season, and that stocks are "cheap" compared to their inflated prices of 6 months ago
7. use any sudden weekly drop in commodity stocks, especially gold to suggest the commodity run is over.
when bank stocks fall by as much, claim there is blood in the streets and its time to buy.
8. build false hype around important "low" points in the market. if indices breakdown below those lows, cite the stocks that are still strong and claim "its a stock picker's market"
9. if stocks bounce off a major low, claim the bottom is in right away and host experts who will speculate if the bottom is indeed in, (even if stocks have lost upwards of %40 of their value in 6 months and bear markets tend to take several quarters to years to play out.)
10. disseminate rumours that Warren Buffett is buying something. based on nothing but rumour or baseless speculation, lend false credibility to the spectacle by having commentators evaluate these proposed purchases by Buffett by saying things like:
"we've heard that Warren Buffett may be looking at railroads, what do you think is going on in his head right now?"
you create a story out of nothing by head-nodding experts who are always will to give their opinion on what they think other people may or may not be thinking.
11. feign impartiality by questioning politicians "strong dollar" policy remarks before transitioning into the familiar "could the US dollar fall farther if a recession is looming?"
12. have legitimate economists like Noriel Roubini discuss reality but place him outside of prime time and use awkward camera angles where they go way too close on his face. if you ever noticed his appearances on Canada's BNN or Fox sometimes you will notice this technique.
this gives the effect of an overbearing and unpalatable persona even if the person is giving reasoned commentary. people tend to respond better and find subjects more engaging if the person discussing it is visible from the shoulders up and not just a large face shot. its subtle and possibly nuts to suggest it but i wouldn't put it past anyone.
13. flood the newsreel with bad news at the same time as somewhat good news to distract people. federal bail outs seem like better news in comparison to UBS writing off billions.
14. use smoke screens to make things seem better, say things like:
"the markets have already priced in the write downs"
"the markets are forward looking"
"markets have over reacted to the credit problems, good companies went down with bad ones"
"lets not dwell on the past and move forward with the recovery"
"in this low interest rate environment, banks will be able to recapitalize while de-leverage at the same time in order to clean up the balance sheets and clear their books of undisclosed level 3 assets that were previously mark-to-model, so their impact on the forward P/E is in line with analyst estimates for Q4 of this year"
15. ensure banks don't issue "sell" ratings to stocks until they have bled themselves dry.
the fear of sell ratings are said to induce panic and could make things worse.
few mention that there could be fundamental reasons why these stocks should go down, instead just focus on the sheep herding effect of a sell rating.
16. talk up scandals within finance and politics to avoid the critical issues. Governor Spitzer's scandal the case in point.
17. ask experts the same question and compile the different answers until people have no idea what really happened as each expert gives a slightly different account of the story.
bear sterns bankrupt
bear sterns bail out
bear sterns bought by JPM
bear sterns on the brink of collapse
bear sterns facing derivative trouble
bear sterns forced margin call
bear sterns hedge fund implosions
bear sterns saved by JPM
bear sterns rescued by the fed and JPM
the fed loaned money to JPM to rescue bear sterns
JPM saved bear sterns with the help of the fed
JPM only bought bear sterns to get their clients
JPM is well capitalized in light of bear's assets
fed prevents a full scale disaster
credit markets saved in light of fed bail-out of bear sterns
18. take part in the plan to take the public's money to save the select few banking titans. all while telling them its other people's fault.
ill call it the "rouge trader" byline.
the rouge trader represents everything that the mass media wants us to believe about whats wrong with the markets. that men acting alone and in the worst interests of their clients funnelled millions away from respectable institutions.
if only the legal establishment could save us and persecute these dastardly rouge elements who are the scourge of industry.
Tuesday, April 8, 2008
food riots breaking out across the globe
The Toronto Star is reporting on food riots breaking out across the globe. I recently posted a story regarding wheat export suspensions in Kazakhstan here. In what could become the front-page story for many months to come, food riots are an extremely power destabilizing force in already unstable central Asian and African states. Haiti has considerble problems and staggering poverty, but if people cannot afford to eat, no measure of law can prevent an outright war over basic resources.
UN: Food riots 'warning sign'
REUTERS/ EDUARDO MUNOZ
Demonstrators form a barricade in the town of Les Cayes, Haiti April 7, 2008 during demonstrations over rising food prices. High food prices could bring unrest and instability around the world, official says.DUBAI, United Arab Emirates –
The recent outbreak of food riots is a warning sign that rising food prices could cause unrest and instability across the world, the UN's top humanitarian official said Tuesday. Combined with the negative impact of climate change and soaring fuel prices, a "perfect storm" is brewing for much of the world's population, said John Holmes, undersecretary general for humanitarian affairs and emergency relief co-ordinator.
"The security implications (of the food crisis) should also not be underestimated as food riots are already being reported across the globe," Holmes told a conference in Dubai, addressing challenges facing humanitarian work. His comments came after two days of rioting in Egypt, where the prices for many staples has doubled in the past year. And violent food protests were continuing for a second day in the capital of Haiti."Current food price trends are likely to increase sharply both the incidence and depth of food insecurity," Holmes said, noting a 40-per-cent average rise in prices worldwide since the middle of last year. Holmes said that the biggest challenge to humanitarian work is the effects of climate change and the resulting "extreme weather" that has doubled the number of recorded disasters – from an average of 200 a year to 400 per year in the past two decades.
Adding food scarcity and expensive fuel to the mix have made for a very volatile situation, he said. "Compounding the challenges of climate change in what some have labelled the perfect storm are the recent dramatic trends in soaring food and fuel prices," he said. One of the factors pushing food prices higher and sparking protests all over the world is more expensive diesel fuel, which is used to transport most of the world's food.
Along with the riots over food scarcity in Haiti and clashes with police over high prices in northern Egypt, UN employees in Jordan staged a day-long strike for pay raises due to a 50-per-cent rise in prices there. A teenager injured in the clashes in the northern Egyptian city of Mahalla al-Kobra has died from his wounds.
In Port-au-Prince, the Haitian capital, UN peacekeepers fired rubber bullets and tear gas into a crowd outside the presidential palace Tuesday on the second day of protests over soaring food prices. Some protesters were trying to break down the palace gates before the UN troops established a security perimeter around the building. ``We are trying to deal with the situation," said Fritz Longchamp, chief of staff to President Rene Preval who was at work inside the palace. The food unrest began last week when Haitians burned cars and attacked a UN police base in the southern city of Les Cayes. At least five people were killed there. The demonstrations reached the capital Monday as thousands marched past the National Palace, some of them crying out: "We're hungry!"
John Powell, the deputy executive director of The United Nation's World Food Program, emphasized the need for developed countries to help governments in the developing world. Developing countries experiencing unrest over high food prices need help in developing "social safety net programs," he said. "Riots today mean you need a solution tomorrow," Powell said. Governments with no "policy space" and under pressure from organized discontent in urban centres "is not likely to be the best decision" in trying to solve the problem, he said.
Powell said the planet is getting hungrier with four million people added to the list of those in most dire need for food to survive. The rise of fuel and food prices is unlikely to stop soon and it affects everyone, Powell said. In the past, natural disasters, wars and ethnic conflict made the rural areas most vulnerable to poverty and hunger. Now, the most vulnerable live in the cities, Powell said.
"They see food on the shelves but they cannot afford to buy it," said Powell. He called urban poverty the "new face of hunger."
Monday, April 7, 2008
Russia's bluff and The Kosovo exception
Gwynne Dyer is one of Canada's most sober and insightful journalists on geo-political matters. His most recent novel After Iraq: Anarchy and Renewal in the Middle East is one of many books he's written on the Iraq war, examining the broader consequences this display of military folly could have on the region. This article published in late March of this year provides a concise account of the shaky legal ground that independence movements face when the UN charter is circumvented.
J
J
Abkhazia: Russian Bluff
By Gwynne Dyer
Last month Kosovo declared its independence from Serbia, and
most of the NATO countries recognised it. Russia condemned
this as an illegal and dangerous precedent, and hinted that
it might recognise other breakaway states like Abkhazia and
South Ossetia. But early next month Russian President
Vladimir Putin will show up at the NATO summit in Bucharest,
in one of his last official acts before passing power to the
president-elect, Dmitri Medvedev. He will not have recognised
Abkhazia or South Ossetia. He was only bluffing.
It sounded serious at first. Early this month, Russia ended
the trade restrictions it placed on Abkhazia and South Ossetia
when they declared their independence from Georgia in the early
1990s. Moscow is very angry about the way that NATO and the
European Union have dismantled Serbia without permission from
the United Nations, and it wanted to make a point.
Georgia accused Russia of "an undisguised attempt to infringe
the sovereignty and territorial integrity of Georgia, to
encourage separatism," but all Moscow actually did was to
ease the rules on trade between the two would-be countries
and Russia. It did not officially recognise them as
independent states, and it never will.
The back-story is that when the Soviet Union replaced the
Russian empire in 1917, its new Communist rulers rationalised
the patchwork quilt of smaller nationalities they inherited
in the Caucasus and Central Asia into "republics" that
formally respected the principle of national self-
determination. But they never actually became independent,
of course, and Moscow didn't want to have to deal with
dozens of them directly.
So the republics were ranked in three tiers, with
fifteen "Union republics" (including Russia itself) as the
top tier. The lower tiers, having been granted "autonomy",
were bundled into one or another of the Union republics,
with Russia getting the lion's share of them. Georgia got
several of them, including Abkhazia and South Ossetia,
and when the Soviet Union broke up in 1991 it expected to
keep them. However, the locals had other ideas.
By then massive immigration into Abkhazia, a subtropical
area on the Black Sea coast, had reduced the Abkhaz ethnic
group to only one-fifth of the population. Over half the
550,000 people living in Abkhazia in 1991 were Georgians.
But in two years of vicious fighting an Abkhaz militia, backed
by volunteers from other parts of the north Caucasus (and
perhaps also secretly by Russia), drove out the Georgian
army and most of the Georgian civilians as well.
It was unapologetic ethnic cleansing, conducted by a tiny
nationality (less than 100,000 people) who feared that
they were disappearing under an avalanche of immigrant
foreigners. Now two-thirds of the previous residents of
Abkhazia have fled, including all but a few tens of
thousands of Georgians, and the Abkhaz are a large majority
of the remaining population. But nobody recognises the
independence of their heavily armed little state.
Russia does not like the current Georgian government, which
talks about joining NATO and the European Union. But Moscow
has not recognised Abkhazia's independence (or South
Ossetia's) because that would be a precedent that could
be used by ethnic minorities in other "autonomous republics"
in Russia itself. And there is a bigger problem, too.
What horrifies the Russians about many recent actions of the
United States and some its European allies -- the war against
Serbia in 1999, the invasion of Iraq in 2003, the creation
of an independent Kosovo in 2008 -- is that they are
deliberately tearing up the United Nations Charter, the
rules that the victorious powers drew up at the end of the
Second World War in the hope of avoiding further great-
power wars.
Attacking the UN is often popular in the United States.
Republican presidential candidate John McCain now talks
about a League of Democracies that would effectively bypass
the UN (and would presumably authorise its members to
invade anybody who needed a lesson). President George
W. Bush acts as though such a vigilante outfit already exists.
The Russians, who lost forty million killed in the last
world war, think that this is a very bad idea. They are
right. If the great powers were ever to go to war again,
the nuclear weapons would come out and hundreds of millions
would die.
The United Nations' core rules are that no country can attack
another, and that the whole international community will
defend and preserve the existing borders of every UN member.
These rules creates much injustice, especially when
oppressed minorities are seeking independence from
intolerant majorities, but they are probably necessary.
They have certainly been useful: no great power has fought
another directly since 1945.
Kosovo was legally part of Serbia, even if most of its
people didn't want anything to do with Serbia. Giving it
independence without Serbia's assent and in defiance of
the UN rules suits the Western great powers for the moment,
but it undermines those essential UN rules that were invented
to bring some order to international affairs.
If Russia one day recognises Abkhazia's independence without
Georgian consent and Security Council approval, it will mean
that Moscow has finally lost its faith in international law
and accepted that the world has reverted to jungle. For
the moment it's just bluffing, but to no avail. The
historically challenged dwarves who currently run foreign
policy in Washington, London, Paris and Berlin don't
even understand what really troubles the Russians.
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