TripleCrisis

The Party is Over: Children, Clean up the House! Lessons from the Turkish #OccupyGezi

They are referred to under different identifiers: generation-Y; millennium generation; globalization generation; Net-generation… roughly they are the cohort of post-1980 newborns, coming from distant geographies, different nations. Yet, they are claimed to share astonishingly common characteristics: narcissistic love of the self; the me, me, me approach to life; impatience; intolerance of all forms of hierarchy; a fetishistic loyalty to technology and brands; almost non-existing interest in social events; apolitical nihilism; non-reading, etc etc…

The peculiar characteristics of the post-1980 generation has been the subject matter of quite some research, but the subject gained popular interest recently through an editorial led by the popular Time Magazine, where most of the adjectives indicated above had been liberally adopted. The Time approach to the generation-Y consisted mostly of a superfluous description of the peculiarities of the young and the hot-blooded consumers. There was not much mention of the surrounding dictates of the neoliberal global assault on the young citizens, nor on the conditions of the political-economy embedded within today’s bubble capitalism.

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Reading and Writing

What We’re Reading

Institute for Policy Studies, Corporate Pirates of the Caribbean
BBC News Europe, Turkey Government Freezes Gezi Park Project
Joachim Jochnow, What’s Become of the German Greens
Greg Kaufman, This Week in Poverty: Congress Turns its Back on Rural America

What We’re Writing

Jayati Ghosh and C.P. Chandrasekhar, Banking as the New Frontier
Martin Khor, Malaysia Takes Key Role in Climate Talks
Jeff Madrick, The Scarlet Debtor
Matias Vernengo, More on David Graeber’s Debt

Crying for Argentina, again?

Martin Rapetti, Guest Blogger

Not so long ago, Argentina was considered a case of economic success. In 2001-02, the country suffered a severe crisis — a triple crisis involving the financial sector, the public debt and the balance of payments — that ranks as high as the worst crisis in Argentina´s history. However, in early 2002, soon after the devaluation of the peso, the default of the public debt and the collapse of the financial system, the economy began a sustained and very strong recovery that later on evolved into strong economic growth. By the end of 2006, GDP was 46% higher than the trough of 2002 and 17% higher than the previous peak of mid-1998; unemployment had shrunk from 22% to 8.7%, poverty from 58% to 28%, and extreme poverty from 28% to 9%. It is not difficult to understand why the experience became a very successful example of crisis resolution, especially for countries in the periphery of the European currency union like Greece.

Argentina’s post-crisis experience also represented a successful reference in terms of its macroeconomic policy regime. In the first years following the crisis, the authorities pursued macroeconomic policies that aimed to maintain a stable and competitive real exchange rate (RER) as a means to promote the expansion of dynamic tradable activities and thus promote economic development. The competitive RER was a key factor behind Argentina’s recovery and growth. Many economists consider a macroeconomic framework targeting a stable and competitive RER more development-friendly than the conventional inflation targeting.

Unfortunately, Argentina’s successful economic experience gradually began to fade away. As in the plot of Mario Vargas Llosa’s classic book Conversación en La Catedral, it is hard to determine at what precise moment this experience “f—d itself up”. A possible turning point was in early 2007, when the government fired civil servants of the National Bureau of Statistics (INDEC) and began to manipulate the official Consumer Price Index to openly hide the acceleration of inflation (since then the official inflation rate has been below 10% per year when actual inflation oscillated around 20-25% per year. The manipulation was later extended to other official statistics, including GDP). But regardless of the precise date, the issue is that the government gradually turned to an increasingly populist path based on excessively expansive fiscal, monetary and wage policies that fueled inflation. Instead of moderating the pace of aggregate demand, the government increasingly relied on the exchange rate as the main nominal anchor to curb inflation. This strategy was especially intense in 2010 and 2011. During these two years, domestic prices rose 54% whereas the nominal exchange rate (i.e., the domestic price of US dollar) only 12%. As a result the RER appreciated significantly.

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A Great Sucking Sound: Part 3

Sasha Breger, Guest Blogger

In my last two posts (http://archives.dollarsandsense.org.user.s436.sureserver.com/newtcb/a-great-sucking-sound-part-2/, http://archives.dollarsandsense.org.user.s436.sureserver.com/newtcb/a-great-sucking-sound-part-1/), I addressed the roles of debt, farmland acquisition, and physical commodity hoarding in helping finance siphon wealth from global agriculture. In this final post, I discuss the role of derivatives and insurance markets in this redistributive process. I then turn to some of the potential critiques of my argument.

Derivatives markets

Derivative and insurance markets are implicated in the redistribution of wealth from agriculture to finance in at least two ways. First, derivatives—and some retail insurance products based on them (e.g. Brazilian CPR, micro crop and revenue insurance)—are increasingly marketed to farmers, traders and/or consumers as a means of reducing market and weather risks in agriculture (demand for such products has been catalyzed by the erosion of public arrangements to prevent and mitigate agricultural risk). To my mind, this arrangement in many cases resembles a case of unequal exchange. An hedging product of mediocre quality is being exchanged for a stream of fees and commissions to the financial sector. Indeed, hedging with commodity futures and options is a tricky proposition without guarantee of success. Contracts are too large and relatively short-term (relative the positions of many food system participants), trading and brokerage accounts are difficult, expensive and time-consuming to establish (especially for smaller traders), and future prices are both volatile and inefficient in many cases (this complicates derivatives trading by increasing the frequency of margin calls, as well as driving basis risk).

In fact, recent speculation in agricultural derivatives (more below) has introduced such inefficiency into future prices that hedgers have been petitioning regulators to introduce new limits on speculative trading. A 2008 letter from the Missouri Farm Board to the US Commodity Futures Trading Commission (CFTC) comments on rising basis risk for hedgers: “For almost three years farmers have experienced a widening of basis levels for most commodities…The lack of convergence between an expiring futures contract and the cash market has… presented major challenges to producers trying to carry out marketing plans involving futures and options contracts.” Even as speculators render cash prices more volatile, and effective risk management thus more essential, these same speculators are disabling one of the few price risk management options that remain for agricultural actors. I hear that sucking sound growing louder.

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NGOs Target Financial Investment in Farmland

Jennifer Clapp

Banks, pension funds, hedge funds and other financial institutions have stepped up their investment in farmland in recent years, including financing for controversial large-scale land deals in developing countries. NGOs are now calling specifically on financial institutions to ensure that their investments are environmentally and socially sound, or consider divestment.

Last month, Friends of the Earth released a report that linked a number of European banks and investment firms to large-scale land acquisitions in Uganda. In this case, the financial institutions provided financing to Wilmar, a major agricultural trading firm with extensive interests in palm oil production and refining. FOE’s research showed that Wilmar’s subsidiary in Uganda had violated environmental and land tenure legislation in connection with recent land purchases in the country.

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Secret Climate Cost Calculations: the Sequel

Frank Ackerman

Three years later, it was time for a new episode. Back in 2010, Congress listened to some climate-denial rants, counted votes, and decided to do absolutely nothing about climate change; this year on Capitol Hill, the magic continues.

Also in 2010, the Obama administration released an estimate of “the social cost of carbon”` (SCC) – that is, the value of the damages done by emission of one more ton of carbon dioxide. Calculated by an anonymous task force that held no public hearings and had no office, website, or named participants, the SCC was released without fanfare as, literally, Appendix 15A to a Department of Energy regulation on energy efficiency standards for small motors.

This year, the Obama administration updated the SCC calculation. The update was done by an anonymous task force that held no public hearings, and had no office, website, or named participants. It first appeared as – yes! – Appendix 16A to a Department of Energy regulation on energy efficiency standards for microwave ovens.

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Time for the US to rethink its LatAm Strategy

Kevin P. Gallagher

This week Chinese President Xi Jinping will make his first official visit to Latin America since taking office. Xi will visit Trinidad and Tobego, Costa Rica, and Mexico. In a scramble the United States has sent Vice President Joseph Biden to the region on a goodwill mission at the same time.

The two leaders will spar over the airwaves, web, and blogosphere offering different visions of cooperation. The US should use this opportunity to strengthen ties with the region and take advantage of the fact that Latin America’s love affair with China appears to be cooling.

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Nationalization is the sovereign right of nations, but is it sufficient?

Mehdi Shaffaedin

Mr. Morales, the president of Bolivia, has recently taken measures to nationalise the oil and gas industries of the country, following his nationalization of utilities. According to international law, nationalisation is regarded as the sovereign right of nations. But is it sufficient to contribute to diversification and development?

Dependence of developing countries on production and exports of primary commodities and the control/ownership of natural resources has been one influence of colonialism. The result: low return value and falling terms of trade against the host countries. Yet, developing countries have aspired to industrialization and rapid development since their independence. And some of them have nationalized their natural resource sector. One way to industrialize and accelerate development is to increase revenues and foreign exchange earned from the primary sector itself, to use them for diversification. Nevertheless, despite their nationalization, not only has the international market been dominated by TNCs, but also the contribution of the accrued revenues to diversification and development has not been significant.

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The Asian Housing Bubble Burst

C.P. Chandrasekhar and Jayati Ghosh

Everyone knows the role played by housing bubbles in the pre-crisis booms that ended in spectacular crashes in the United States in 2008, as well as in other countries like the UK and Ireland, and then Spain. But many commentators still persist in seeing this as more of a developed economy problem, which is less likely to become a concern in developing countries where excess demand for housing remains an issue.

In fact, however, it is just as possible for debt-driven private consumption bubbles to burst in developing countries – and several developing country financial crises have resulted from precisely that in the past. The experience of the Asian financial crisis in 1997-98, in which excess private indebtedness played a big role in causing the crisis in South Korea and Thailand, had provided a salutary lesson to most of developing Asia in the subsequent decade.

So it could have been expected that allowing excessive private credit expansion, especially for private retail credit for housing, automobiles and other consumption, is something that would be anathema to Asian countries, especially those that had already gone through one round of devastating financial crises. Yet, in the aftermath of the Great Recession of 2008, many Asian developing countries actually encouraged the growth of consumer credit bubbles as a means to more rapid recovery, accentuating a process that had already been eased by financial liberalisation from 1999 onwards.

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A Great Sucking Sound: Part 2

Sasha Breger, Guest Blogger

In my last post, I discussed the role of debt relationships and farmland acquisition in redistributing wealth from global agriculture to finance. This post discusses another mechanism for such injustice: commodity hoarding by financial firms. Over the last several years, as agricultural commodity prices rose, large financial institutions took the opportunity to speculate in both virtual commodities (via derivatives markets, to be addressed in part 3 of this post), and physical commodities. Speculating in physical commodities involves selectively storing and releasing food crops so as to profit from movements in price (and, sometimes to influence prices) over the time the crop is stored. Financial institutions factor into this dynamic in two ways: directly, as commodity hoarders; and, indirectly, as lenders to and shareholders in major global food trading companies that hoard commodities.

Despite reports that many prominent financial firms are exiting commodities markets (responding to public pressures to stop gambling on food, and higher regulatory costs), there is ample evidence to the contrary. Global metals markets illustrate some new, scary methods for institutional hoarding and spot market speculation, methods that are likely to be transferred to food commodities moving forward.

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