Saturday, July 10, 2010
Tips for Job-Seeking in This Economy
Newswise — Thanks to the recession, today’s job market is crowded. If an open position at a company would once attract 100 resumes, today it could attract 500. The search can be long and grueling.
Butler University Executive-in-Residence Marv Recht offers some tips to help in the job search.
1) Be prepared for your salary to get a “haircut.”
With more job seekers than available jobs, companies appear to be using the imbalance to adjust their salary bands downward. Rutgers University researchers first surveyed a representative sample of unemployed Americans in August and recently checked back with them to monitor their luck in going back to work. Since August, only one in five of the group who had been out of work for six months or longer had found a job. Of that group, only 10 percent had landed a new position with a salary on par with their previous job. The rest had accepted lower pay and fewer benefits.
2) Handle the question of salary expectations strategically.
In a job listing, employers often ask for your salary expectations or history. You do not want to rule yourself out of a chance at an interview by listing a salary that is too high; conversely, you do not want to short-change yourself if you should land the job by listing a salary that is too low.
Handle the question with a variation of this response: “My most recent base salary was $XX. However, as I
understand, there is significant growth potential in this position. As my primary interest at this stage of my career is working for a growing company, the matter of salary is negotiable.”
What if you are offered the job and the HR person asks, “What kind of salary are you looking for?” Again, you don’t want to rule yourself out by being too high or shortchange yourself by being too low. Prepare for that moment by researching on www.salary.com what the midpoint of the salary range is for that kind of job in the area where the company is located.
3) Play good offense if your age might be an issue in a job interview.
If you are 50 or over, you want to disabuse the potential employer quickly of the idea that you might work a few years in the new job and then retire. Research the company thoroughly so you can speak knowledgably about the company’s success. Emphasize the future in answers, such as “I see the company is on a growth pattern of X percent a year and I want to work for a growing firm and grow in my skills and contributions to that success.”
4) Be prepared to move.
You like where you currently live because it’s a good place to raise children, say, or your elderly parents live nearby. That’s fine — but your best shot at a job might lie elsewhere.
5) Investigate getting into a new job via a staffing organization.
With companies reduced to lean employee rolls, they are filling some of the gaps with temp employees from companies such as Kelly Services, Inc., and Adecco. As the economy picks up steam, companies will make some of those jobs full-time again. If you are already doing great work as a temp in a position, you will be first in line for consideration.
Marv Recht has over 35 years of career counseling and human resources experience, working for General Motors Corporation and human resources consulting firm DBM. Now retired from corporate life, he works at Butler University as an executive-in-residence for the College of Business where he teaches courses on career planning and development, and serves as an academic advisor.
To find other Butler University experts, visit http://www.butler.edu/experts/.
Source: Butler University
Newscribe : get free news in real time
Friday, July 9, 2010
Joblessness and housing add risks to U.S. recovery: IMF
WASHINGTON |
WASHINGTON (Reuters) - High unemployment and a moribund housing market have increased risks to the U.S. economic recovery, while the public debt looms large and needs to be cut, the International Monetary Fund said on Thursday.In a statement after annual consultations with U.S. authorities, the IMF raised its U.S. growth forecasts slightly to 3.3 percent for 2010 and 2.9 percent for 2011, but said unemployment would remain above 9 percent for both years.
The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.
"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending," the Fund said.
The IMF also said commercial real estate continued to deteriorate, posing risks for smaller banks. Further tipping the balance of risks to the downside, it said Europe's sovereign debt crisis could worsen financial market conditions and hurt trade.
David Robinson, the IMF's Western Hemisphere deputy director, conceded in a news briefing that recent data had come in on the weak side since the report was completed on June 21. If the weakness continued, the Fund may have to revise its forecasts downward, he said.
In a separate report on the world economy, the IMF raised its 2010 global growth forecast to 4.6 percent from the 4.2 percent it had projected in April.
DEBT BURDEN
Apart from dealing with economic risks, the IMF said the key challenge for the United States was to develop a credible strategy to put its budget on a sustainable path without jeopardizing the recovery.
The fund said U.S. federal debt as a percentage of gross domestic product would rise from 64 percent in 2010 to 80.4 percent by 2015, 96.3 percent by 2020 and 135 percent by 2030. These debt forecasts are higher than those of the Obama administration and the Congressional Budget Office, which projects debt-to-GDP at 77.4 percent in fiscal 2015, and 90 percent by 2020.
A U.S. Treasury official said the IMF's forecasts for future growth and interest rates were "overly pessimistic". The Fund, for example, predicted U.S. growth at 2.8 percent in 2012, compared to the Blue Chip consensus of private forecasters at 3.4 percent growth for that year.
But the IMF welcomed commitments by the Obama administration to stabilize this at just over 70 percent of GDP by 2015 but called for a downward path after that, a step that would require both spending cuts and increased revenues.
The IMF said the biggest contribution the United States could make to global growth and stability would be to increase its domestic savings -- particularly by reducing deficits.
"The U.S. is no longer going to be the global consumer of last resort and therefore other countries, especially those with current account surpluses, will need to take up the slack," Robinson said.
"With our assessment that the dollar is now somewhat overvalued from a medium-term perspective, I emphasize medium-term, this will also need to be accompanied by greater exchange rate flexibility and appreciation elsewhere," he added.
Robinson said he believed the dollar's value would decline moderately over the next five years based on economic fundamentals. The dollar's rise in recent months was "not helpful" in sustaining global recovery but was not a "deal breaker" either, he said.
The Fund said the Federal Reserve's pledge to keep interest rates exceptionally low was appropriate to fight deflation and the drag on the economy from reduced government spending, but said the U.S. central bank must clearly communicate its plans for exiting its supportive policies.
The IMF also said that while the United States has made considerable progress in restoring financial stability, more capital will be needed in the banking system to support additional lending -- particularly if securitization markets remain impaired.
It said U.S. financial reform legislation would reduce systemic risks in the financial system, but noted that Congress missed an opportunity to consolidate bank regulators, maintaining a burden on agencies to cooperate and avoid gaps in supervision.
(Additional reporting by Emily Kaiser, Tim Ahmann and Lesley Wroughton; Editing by Andrea Ricci)
Newscribe : get free news in real time
Thursday, July 8, 2010
Krugman Says U.S. Economy Is Facing a ‘Long Siege’
“We are looking at what could be a very long siege here,” Krugman said in an interview today in Princeton, New Jersey, with Carol Massar of Bloomberg Television’s “Street Smart.” “We really are at a stage where we should have a kitchen-sink strategy. We should be throwing everything we can get at this.”
At a time when European countries such as Germany are calling for austerity measures to rein in budget deficits, Krugman is calling for more stimulus to prevent a repeat in the U.S. of Japan’s decade of economic malaise in the 1990s.
“The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people,” he said. “We are deep in the hole here, and you need to be unconventional to get out of it.”
He said too many policy makers and commentators are overly concerned that the ballooning U.S. deficit would set off a crisis of confidence similar to Europe’s sovereign debt crisis. Krugman said he’s concerned U.S. policy makers would be unable to agree to short-term stimulus for the economy along with long- term measures to curtail the deficit.
“I worry about the politics,” he said. “I worry about our ability to get a consensus to do the pretty straight-forward things we need to do to balance our budget in the long run.”
Long-Term Deficits
The projected U.S. budget gap in 10 years can be brought under control with a “combination of modest tax increases and reasonable spending cuts,” particularly on health care, Krugman said, adding it’s “extremely unlikely” the U.S. would ever default on its debt.
“I’m not aware of any example of a country that got into fiscal difficulty because it began a stimulus program and couldn’t take away the stimulus program,” he said. “If you’re serious about fiscal responsibility, you should not be saying, ‘let’s skimp on aid to the economy in the middle of a financial crisis.’”
Krugman forecast the economy will grow at about a 1 percent pace or slightly faster within six months, and that job growth would be less than the rate of growth of the population. He said in six months, the U.S. would be facing a “labor market that’s getting worse not better.”
Job Gains
The U.S. Labor Department reported last week that employment fell by 125,000 workers in June, the first jobs decline this year, because of layoffs of temporary census workers. Private companies added 83,000 people, a smaller-than- forecast gain that capped a month of data indicating weakness in industries from housing to manufacturing.
Other reports last month showed a plunge in home sales, a slump in consumer confidence, cooler manufacturing and less growth in the first quarter.
The lack of jobs will curtail consumer spending, which accounts for about 70 percent of the world’s largest economy, and restrain sales at retailers including Barnes & Noble Inc. The rebound from the worst recession since the 1930s faces risks from the European debt crisis and slower growth in China at the same time that fiscal stimulus measures fade.
“We are, I think, sliding into a situation where we’re likely to see several bad years ahead,” Krugman said. “Given what I see in the political process, the odds are against us avoiding a really prolonged bad period.”
By Bob Willis and Carol Massar
Bloomberg
Wednesday, July 7, 2010
Americans Adopt Chinese Web Habits
When it comes to revenue on the U.S. Internet, it has traditionally come from three sources:
Lately though, something different has happened. These are:
A large reason for the success of online games in China was because consoles such as Nintendo'sWii , Sony's Playstation and Microsoft's xBox were never popular in China. A combination of high console prices, fear of game piracy on the part of publishers and government policy opened up an opportunity for online gaming.
In the U.S., Zynga has grown just as fast as Shanda, seemingly coming out of nowhere. Like Shanda, it is becoming a network too, leveraging the popularity of Farmville among many social game players. One could argue that Zynga is like Shanda, except it is starting from the U.S. market.
Groupon has leveraged the popularity of group buying, an activity which has long been popular in China since at least 2004. In China, group buying is called tuangou, and was an early popular use of the Internet for organizing. In China, the authorities have been wary of uses of the Internet which allow people to organize, but organizing for commercial purposes, such as group buying, are considered harmless, and thus are not obstructed. So effective was the tuangou movement that some retailers first sought to reject volume tuangou purchases of white goods and autos, but all eventually caved in, with some eventually setting up group purchasing departments to specially serve tuangou buyers. Now, they are a natural part of the Chinese retail landscape.
So, it is doubly ironic that Groupon's success in the U.S. has set off a flurry of Chinese startups who copy the Groupon model in China. It makes one wonder...
As gaming and group buying become more popular in the U.S., some trends to watch are:
- Display (banner) advertising;
- Search advertising, made popular through Google Adwords;
- E-commerce, with Amazon.com being the most outstanding success story;
Lately though, something different has happened. These are:
- The rise of social game publishers, led by Zynga;
- The rise of group-buying, lead by Groupon;
A large reason for the success of online games in China was because consoles such as Nintendo's
In the U.S., Zynga has grown just as fast as Shanda, seemingly coming out of nowhere. Like Shanda, it is becoming a network too, leveraging the popularity of Farmville among many social game players. One could argue that Zynga is like Shanda, except it is starting from the U.S. market.
Groupon has leveraged the popularity of group buying, an activity which has long been popular in China since at least 2004. In China, group buying is called tuangou, and was an early popular use of the Internet for organizing. In China, the authorities have been wary of uses of the Internet which allow people to organize, but organizing for commercial purposes, such as group buying, are considered harmless, and thus are not obstructed. So effective was the tuangou movement that some retailers first sought to reject volume tuangou purchases of white goods and autos, but all eventually caved in, with some eventually setting up group purchasing departments to specially serve tuangou buyers. Now, they are a natural part of the Chinese retail landscape.
So, it is doubly ironic that Groupon's success in the U.S. has set off a flurry of Chinese startups who copy the Groupon model in China. It makes one wonder...
As gaming and group buying become more popular in the U.S., some trends to watch are:
- Will social gaming eat into the popularity of console game titles and their publishers' revenue?
- Will more game publishers move into social game publishing, seeking to duplicate Zynga's success?
- How popular will social gaming become on the Android and
Apple iPhone mobile platforms? - As social games take off, will display advertising revenues fall, maybe even to China levels? (In China, online game revenues have always been higher than display advertising revenue.)
- If social gaming becomes popular, will in-game advertising ever take off? (In-game advertising has been a promise for years, but has never taken off.)
- Will U.S. retailers embrace group buying groups the way Chinese retailers have embraced tuangou?
- Will e-commerce in China overtake U.S. e-commerce in five years, as PwC has predicted, and will China become the largest IPO market this year?
Tags: America, android, Apple, China, Gaming, Google, Groupon, Internet, Microsoft, Nintendo, PlayStation, shanda, Sony, U.S., Web, Wii, xBox, Zynga
Source: Newscribe : get free news in real time
Source: Newscribe : get free news in real time
Tuesday, July 6, 2010
Tips for Seniors to Prevent Falls
This Week’s Question: I had an aging aunt who fell and broke her hip. She was never the same after that. Now that I’m old, myself, I’m worried about falling. What should I do about this?
Well, first of all, you can’t go around worrying about falling or you won’t be relaxed; that can lead to a fall. So, you should concentrate on employing techniques to avoid falls and then don’t let the fear take over you mind.
But a respect for the dangers of falling is justified by the statistics.
Among older adults, falls are the leading cause of injury deaths and the most common cause of nonfatal injuries and hospital admissions for trauma. Of all fall-related fractures, hip breaks cause the greatest number of deaths and lead to the most severe health problems and reduced quality of life.
As we age, the power of our senses, reflexes and coordination diminishes. Maladies and the medicines we take for them can contribute to balance problems. Then there's osteoporosis—a disease that makes bones more likely to snap.
There are many steps you can take to prevent a fall and the possibility of breaking a bone. I’m dedicating the remainder of this column to the best tips I collected from a variety of experts:
* Get your bones tested. Your doctor can prescribe medications that will make your bones harder to break.
* Regular exercise makes you stronger and keeps your joints, tendons, and ligaments flexible. Weight-bearing exercise such as walking may slow bone loss from osteoporosis.
* Alcohol impacts your reflexes and balance. Elaboration is unnecessary.
* Get up slowly from lying and sitting to avoid feeling light-headed.
* Avoid temperature extremes in your home; they can make you dizzy.
* Wear rubber-soled, low-heeled shoes.
* Always hold the handrails on stairways.
* Don't stand on a chair to get to something. Buy a “reach stick,” a grabbing tool you can find at many hardware stores.
* Clear floors where you walk.
* Never carry any package that will obstruct your view of the next step.
* Mount grab bars near toilets, tubs and showers.
* Place non-skid mats, strips, or carpet on all surfaces that may get wet, especially bathtubs and shower stalls.
* Let the soap suds go down the drain before you move around in the shower. If you are prone to falling, use a shower chair and a handheld shower attachment.
* Put night lights and light switches close to your bed.
* Use bright bulbs in your home.
* Keep your telephone near your bed. During the day, keep a portable phone with you so you won’t have to walk to answer it.
* Tack down all carpets and area rugs.
* Close cabinet doors and drawers so you won't run into them.
* When it rains or snows, consider using a cane.
* Use a shoulder bag, fanny pack, or backpack to leave hands free.
* Check curb heights before stepping down.
* When entering rooms, look for differences in floor levels.
* Insure that every room in your home has a light switch near the entrance.
* Practice balancing. Hold onto something such as a countertop and stand on one leg at a time for a minute. Gradually increase the time. Try balancing with your eyes closed. Stand on your toes, then rock back to balance on your heels. Hold each position for a count of 10.
* Be especially careful around pets.
By Fred Cicetti, The Healthy Geezer,
The Healthy Geezer column publishes each Monday on LiveScience.
Newscribe : get free news in real time
Well, first of all, you can’t go around worrying about falling or you won’t be relaxed; that can lead to a fall. So, you should concentrate on employing techniques to avoid falls and then don’t let the fear take over you mind.
But a respect for the dangers of falling is justified by the statistics.
Among older adults, falls are the leading cause of injury deaths and the most common cause of nonfatal injuries and hospital admissions for trauma. Of all fall-related fractures, hip breaks cause the greatest number of deaths and lead to the most severe health problems and reduced quality of life.
As we age, the power of our senses, reflexes and coordination diminishes. Maladies and the medicines we take for them can contribute to balance problems. Then there's osteoporosis—a disease that makes bones more likely to snap.
There are many steps you can take to prevent a fall and the possibility of breaking a bone. I’m dedicating the remainder of this column to the best tips I collected from a variety of experts:
* Get your bones tested. Your doctor can prescribe medications that will make your bones harder to break.
* Regular exercise makes you stronger and keeps your joints, tendons, and ligaments flexible. Weight-bearing exercise such as walking may slow bone loss from osteoporosis.
* Alcohol impacts your reflexes and balance. Elaboration is unnecessary.
* Get up slowly from lying and sitting to avoid feeling light-headed.
* Avoid temperature extremes in your home; they can make you dizzy.
* Wear rubber-soled, low-heeled shoes.
* Always hold the handrails on stairways.
* Don't stand on a chair to get to something. Buy a “reach stick,” a grabbing tool you can find at many hardware stores.
* Clear floors where you walk.
* Never carry any package that will obstruct your view of the next step.
* Mount grab bars near toilets, tubs and showers.
* Place non-skid mats, strips, or carpet on all surfaces that may get wet, especially bathtubs and shower stalls.
* Let the soap suds go down the drain before you move around in the shower. If you are prone to falling, use a shower chair and a handheld shower attachment.
* Put night lights and light switches close to your bed.
* Use bright bulbs in your home.
* Keep your telephone near your bed. During the day, keep a portable phone with you so you won’t have to walk to answer it.
* Tack down all carpets and area rugs.
* Close cabinet doors and drawers so you won't run into them.
* When it rains or snows, consider using a cane.
* Use a shoulder bag, fanny pack, or backpack to leave hands free.
* Check curb heights before stepping down.
* When entering rooms, look for differences in floor levels.
* Insure that every room in your home has a light switch near the entrance.
* Practice balancing. Hold onto something such as a countertop and stand on one leg at a time for a minute. Gradually increase the time. Try balancing with your eyes closed. Stand on your toes, then rock back to balance on your heels. Hold each position for a count of 10.
* Be especially careful around pets.
By Fred Cicetti, The Healthy Geezer,
The Healthy Geezer column publishes each Monday on LiveScience.
Newscribe : get free news in real time
Insurance Need to improve fraud detection standards
By DALJIT DHESI
daljit@thestar.com.my
Insurers must adopt international best practices and share data, informationKUALA LUMPUR: Insurance fraud will continue to be a threat unless fraud-detection standards are improved and the public are made more aware of this menace.
Deputy Home Minister Datuk Lee Chee Leong said insurers must continue to improve their standards in fraud detection by adopting international best practices and share data and information relating to fraud activities among insurers.
“The regulators and law enforcers have to continuously assess the effectiveness of the law as to whether they are adequate and can at least discourage people from committing insurance fraud.
“Strong cooperation has to be extended to other jurisdictions, too, especially Asean, as organised crime operates in multiple countries and locations. With concerted effort by all parties, I am confident that this activity can be successfully minimised,” he said in his speech at the International Insurance Fraud Conference 2010 yesterday.
Datuk Lee Chee Leong ... ‘Insurance fraud pushes up the cost of everything one buys.’
He said the relevant associations and the Malaysian Insurance Institute (MII) could take the lead by educating society on the consequences of promoting insurance fraud and how they could help to combat it.
Lee said some authorities estimated the cost of insurance fraud ran as high as 10% of the total claims cost. An estimate done in the Unites States by the Coalition Against Insurance Fraud showed that the cost of insurance fraud was about US$80bil a year and this trend would keep escalating.
Insurance fraud, he said, pushed up the cost of everything one bought and used as every company that produced goods or services paid for insurance as a cost of doing business.
Phillip K.F. Fong, who is Crawford Group director for global markets-Asia Pacific and managing director for Malaysia, said based on global figures, it was estimated that about 3% to 5% of total gross premiums worldwide had an element of fraud.
He said during difficult times, as in the case of an economic downturn, the tendency for insurance fraud would be on the rise, for example, in property, household and motor-related claims.
Fong said insurers needed to upgrade their skills and improve their fraud-detection capabilities.
Phillip K.F. Fong ... ‘The insurance industry needs to be vigilant at all times.’Fong categorised fraudsters into three different types – opportunistic, repeat and organised ones. He said to have an effective fraud strategy, three golden rules should be upheld – detection (identification of high risk/suspicious claims), investigation (management and customer-focused investigation of claims once labelled “high risk”) and articulation (production of accurate management information).
Apart from making people more conscious of fradulent claims, insurers must not be publicity-shy as those who fear adverse publicity are invariably the subject of a greater proportion of dishonest claims. MII CEO Khadijah Abdullah said a more structured way of capturing information on insurance fraud was needed via cooperation from Bank Negara, insurers and other relevant parties.
Related Stories:
Insurance fraud in M'sia estimated at RM1.74bil last year
KUALA LUMPUR: Insurance fraud, estimated at RM1.74 billion in Malaysia last year, is clearly a "big business" and more alarming is, the public apathy surrounding it."This apathy at times, unfortunately, even finds its way into our criminal justice system," Deputy Minister of Home Affairs, Datuk Lee Chee Leong said on Monday.
Research on the public perception of insurance fraud concluded that on average, 30 per cent of the public respondents believed, it is acceptable to pad an insurance claim, he added.
"(Hence), there seems to be a great willingness among normally law abiding people to tolerate low levels of insurance fraud.
"However, the burden of combating such crime should not merely rest with the public sector alone, but also the private sector, particularly, the insurers themselves," Lee said in his opening remarks at the International Insurance Fraud Conference 2010, here, on Monday.
He also said that the Association of Malaysian Loss Adjusters (AMLA) and the Malaysian Insurance Institute (MII) should perhaps take the lead to educate society on the consequences of promoting insurance fraud and how they can help combat the issue.
According to the National Insurance Crime Bureau of the Unites States, fraud inflates the cost of each consumer's insurance premiums by US$200 to US$300 annually.
"Insurance fraud pushes up the cost of everything you buy and use because every company that produces goods or services, pays for insurance as a cost of doing business.
"Going forward, the insurers must also continue to improve their standards of fraud detection by adopting the international best practices and share data and information relating to fraud activities among themselves," Lee said.
Meanwhile, the MII's Chief Executive Officer, Khadijah Abdullah suggested that there should be a unified statutory body to oversee fraud in the industry and compile appropriate data.
"Currently, associations and Bank Negara Malaysia, have their own supervision over the issue but there is no single body that can help compile the information," she said. - BERNAMA
Monday, July 5, 2010
U.S.’s Startup Myth; China’s ‘Ford Moment’: Commentary Review
Job-Creation Faith Is Misplaced
Recently an acquaintance at the next table in a Palo Alto, California, restaurant introduced me to his companions: three young venture capitalists from China. They explained, with visible excitement, that they were touring promising companies in Silicon Valley. I’ve lived in the Valley a long time, and usually when I see how the region has become such a draw for global investments, I feel a little proud.
Not this time. I left the restaurant unsettled. Something didn’t add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late -- unless you are counting Asia, where American technology companies have been adding jobs like mad for years.
The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups. (July 2)
Andy Grove
{NSN L4W13G1A1I4H <GO>}
So Far, Capitalism Rules
If these factory strikes continue, China may have to go Communist.
It’s tempting to wonder which way China will go. Will it side with demands for higher pay and let strikes broaden? Might it clamp down on this budding Solidarity-style movement to protect the all-important export machine? Or will workers demand a true Communism -- not just one that abhors Google?
So far, China has taken the first path, going more the way of capitalism than Communism. It raises the specter of a “Henry Ford moment” in the most populous nation, with both good and bad implications for the global economy.
First, the good news. China’s leaders are taking a page from the industrialist who built Ford Motor Co. In 1914, Ford doubled the average automaker’s wage to $5 a day. It made his Model T more affordable to them and provided a model for a stable workforce that formed the core of the U.S. middle class.
It’s a dynamic China needs more of, and signs are that it’s spreading before our eyes. The positive domino effect it unleashes would create a growing domestic market for products factory workers produce. It would accelerate China’s shift from exports to a consumer-led economy. (June 28)
William Pesek
{NSN L4NN5307SXKX <GO>}
Banking Bill Invites Meltdown
The financial overhaul bill set for passage sometime next week is supposed to “bring accountability to Wall Street.” In announcing an agreement between the House and Senate last week, Senator Christopher Dodd noted that “the American people have called on us to set clear rules of the road for the financial industry to prevent a repeat of the financial collapse that cost so many so dearly.”
The final bill, though, does little to prevent a systemically important bank from failing, and makes it far more difficult for regulators to assist one seeking to avoid failure. This all but insures that the system-wide calamity the bill should be trying to prevent will, in fact, occur again.
Most of the systemic risk in the U.S. is now carried in the six largest bank-holding companies (Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley). The bill lets them off easy: none is to be broken up and the effort to lower the risk they take on was diluted. (June 28)
Roy C. Smith
{NSN L4MNEP0UQVI9 <GO>}
EU Mulls Sovereign Default
The notion that default might be the only sensible exit strategy for an indebted euro nation is finally gaining traction with the authorities. With global financial markets still in a state of disrepair, investors would be wise to tread softly amid the potential nightmares.
A draft European Union document, dated June 25 and scheduled for discussion July 12-13, was obtained this week by Bloomberg reporter Meera Louis. The draft suggests the forthcoming stress tests planned for the region’s banks should assess the dangers posed by “exposures to sovereign risk.”
That’s a euphemism for asking whether banks would blow up if a government couldn’t pay its debts. Including that scenario in the analysis is an admission that the prospect of restructuring has, in the minds of the euro’s apparatchiks, moved up the scale to “possible” from “out of the question.”
On June 28, the Bank for International Settlements weighed in with its annual report. Cheery reading it is not. (July 1)
Mark Gilbert
{NSN L4U63E07SXKX <GO>}
--Editors: John LearNewscribe : get free news in real time
The Chinese economy’s secret recipe
Comment by FAN GANG
CHINA’S GDP growth this year may approach 10%. While some countries are still dealing with economic crisis or its aftermath, China’s challenge is – once again – how to manage a boom.
Thanks to decisive policy moves to pre-empt a housing bubble, the real estate market has stabilised, and further corrections are expected soon.
This is good news for China’s economy, but disappointing, perhaps, to those who assumed that the government would allow the bubble to grow bigger and bigger, eventually precipitating a crash.
Whether or not the housing correction will hit overall growth depends on how one defines “hit.” Lower asset prices may slow total investment growth and GDP, but if the slowdown is (supposedly) from 11% to 9%, China will avoid economic over-heating yet still enjoy sustainable high growth. Indeed, for China, the current annualised growth rate of 37% in housing investment is very negative. Ideally, it would slow to, say, 27% this year!
China has sustained rapid economic growth for 30 years without significant fluctuations or interruption – so far. Excluding the 1989-1990 slowdown that followed the Tiananmen crisis, average annual growth over this period was 9.45%, with a peak of 14.2% in 1994 and 2007, and a nadir of 7.6% in 1999.
While most major economies in their early stages of growth suffered crises, China’s story seems abnormal (or accidental), and has elicited periodic predictions of an “upcoming crash.” All such predictions have proved wrong, but the longer the story lasts, the more people forecast a bad end.
For me, there is nothing more abnormal about China’s unbroken pattern of growth than effective macroeconomic intervention in boom times.
To be sure, both economic development and institutional reforms may cause instability. Indeed, the type of central government inherited from the old planned economy, with its overstretched growth plans, causes fluctuations, and contributed significantly to instability in the early 1980s.
But the central government must be responsible for inflation in times of overheating, lest a bursting bubble fuel unemployment. Local governments and state-owned enterprises do not necessarily have those concerns. They want high GDP growth, without worrying much about the macroeconomic consequences.
They want to borrow as much as possible to finance ambitious investment projects, without worrying much about either repayment or inflation.
Indeed, the main cause of overheating in the early 1990s was over-borrowing by local governments. Inflation soared to 21% in 1994 – its highest level over the past 30 years – and a great deal of local debt ended up as non-performing loans, which amounted to 40% of total credits in the state banking sector in the mid-1990s.
This source of vulnerability has become less important, owing to tight restrictions imposed since the 1990s on local governments’ borrowing capacity.
Now, however, the so-called “animal spirits” of China’s first generation of entrepreneurs have become another source of overheating risk. The economy has been booming, income has been rising, and markets have been expanding: all this creates high potential for enterprises to grow; all want to seize new opportunities, and every investor wants to get rich fast.
They have been successful and, so far, have not experienced bad times. So they invest and speculate fiercely without much consideration of risk.
The relatively high inflation of the early 1990s was a warning to central government policymakers about the macroeconomic risks posed by fast growth. The bubble bursts in Japan’s economy in the early 1990s, and the South East Asian economies later in the decade, provided a neighbourly lesson to stop believing that bubbles never burst.
Since then, the central government’s policy stance has been to put brakes on the economy whenever there is a tendency toward overheating. Stringent measures were implemented in the early 1990s to reduce the money supply and stop over-investment, thereby heading off hyperinflation.
In the recent cycle, the authorities began cooling down the economy as early as 2004, when China had just emerged from the downturn caused by the SARS scare in 2003. In late-2007, when GDP growth hit 13%, the government adopted more restrictive anti-bubble policies in industries (steel, for example) and asset markets (real estate), which set the stage for an early correction.
Economic theory holds that all crises are caused by bubbles or over-heating, so if you can manage to prevent bubbles, you can prevent crises. The most important thing for “ironing out cycles” is not the stimulus policy implemented after a crash has already occurred, but to be proactive in boom times and stop bubbles in their early stages.
I am not quite sure whether all Chinese policymakers are good students of modern economics. But it seems that what they have been doing in practice happened to be better than what their counterparts in some other countries were doing – a lot on “de-regulation,” but too little on cooling things down when the economy was booming and bubbles were forming.
The problem for the world economy is that everybody remembered Keynes’ lesson about the need for countercyclical policies only when the crisis erupted, after demanding to be left alone – with no symmetric policy intervention – during the preceding boom. But managing the boom is more important, because it addresses what causes crises in the first place.
In a sense, what China has been doing seems to me to be the creation of a true “Keynesian world” – more private business and freer price competition at the micro level, and active countercyclical policy intervention at the macro level.
There may be other factors that could slow down or interrupt China’s growth. I only hope that policymakers’ vigilance will prevail (and be improved upon), enabling China’s high-growth story to continue for another 10, 20 or 30 years. – © Project Syndicate
Fan Gang is Professor of Economics at
Beijing University and the Chinese Academy of Social Sciences, director of China’s National Economic Research Institute, Secretary-General of the China Reform Foundation, and a member of the Monetary Policy Committee of the People’s Bank of China.
Thanks to decisive policy moves to pre-empt a housing bubble, the real estate market has stabilised, and further corrections are expected soon.
This is good news for China’s economy, but disappointing, perhaps, to those who assumed that the government would allow the bubble to grow bigger and bigger, eventually precipitating a crash.
Whether or not the housing correction will hit overall growth depends on how one defines “hit.” Lower asset prices may slow total investment growth and GDP, but if the slowdown is (supposedly) from 11% to 9%, China will avoid economic over-heating yet still enjoy sustainable high growth. Indeed, for China, the current annualised growth rate of 37% in housing investment is very negative. Ideally, it would slow to, say, 27% this year!
China has sustained rapid economic growth for 30 years without significant fluctuations or interruption – so far. Excluding the 1989-1990 slowdown that followed the Tiananmen crisis, average annual growth over this period was 9.45%, with a peak of 14.2% in 1994 and 2007, and a nadir of 7.6% in 1999.
While most major economies in their early stages of growth suffered crises, China’s story seems abnormal (or accidental), and has elicited periodic predictions of an “upcoming crash.” All such predictions have proved wrong, but the longer the story lasts, the more people forecast a bad end.
For me, there is nothing more abnormal about China’s unbroken pattern of growth than effective macroeconomic intervention in boom times.
To be sure, both economic development and institutional reforms may cause instability. Indeed, the type of central government inherited from the old planned economy, with its overstretched growth plans, causes fluctuations, and contributed significantly to instability in the early 1980s.
But the central government must be responsible for inflation in times of overheating, lest a bursting bubble fuel unemployment. Local governments and state-owned enterprises do not necessarily have those concerns. They want high GDP growth, without worrying much about the macroeconomic consequences.
They want to borrow as much as possible to finance ambitious investment projects, without worrying much about either repayment or inflation.
Indeed, the main cause of overheating in the early 1990s was over-borrowing by local governments. Inflation soared to 21% in 1994 – its highest level over the past 30 years – and a great deal of local debt ended up as non-performing loans, which amounted to 40% of total credits in the state banking sector in the mid-1990s.
This source of vulnerability has become less important, owing to tight restrictions imposed since the 1990s on local governments’ borrowing capacity.
Now, however, the so-called “animal spirits” of China’s first generation of entrepreneurs have become another source of overheating risk. The economy has been booming, income has been rising, and markets have been expanding: all this creates high potential for enterprises to grow; all want to seize new opportunities, and every investor wants to get rich fast.
They have been successful and, so far, have not experienced bad times. So they invest and speculate fiercely without much consideration of risk.
The relatively high inflation of the early 1990s was a warning to central government policymakers about the macroeconomic risks posed by fast growth. The bubble bursts in Japan’s economy in the early 1990s, and the South East Asian economies later in the decade, provided a neighbourly lesson to stop believing that bubbles never burst.
Since then, the central government’s policy stance has been to put brakes on the economy whenever there is a tendency toward overheating. Stringent measures were implemented in the early 1990s to reduce the money supply and stop over-investment, thereby heading off hyperinflation.
In the recent cycle, the authorities began cooling down the economy as early as 2004, when China had just emerged from the downturn caused by the SARS scare in 2003. In late-2007, when GDP growth hit 13%, the government adopted more restrictive anti-bubble policies in industries (steel, for example) and asset markets (real estate), which set the stage for an early correction.
Economic theory holds that all crises are caused by bubbles or over-heating, so if you can manage to prevent bubbles, you can prevent crises. The most important thing for “ironing out cycles” is not the stimulus policy implemented after a crash has already occurred, but to be proactive in boom times and stop bubbles in their early stages.
I am not quite sure whether all Chinese policymakers are good students of modern economics. But it seems that what they have been doing in practice happened to be better than what their counterparts in some other countries were doing – a lot on “de-regulation,” but too little on cooling things down when the economy was booming and bubbles were forming.
The problem for the world economy is that everybody remembered Keynes’ lesson about the need for countercyclical policies only when the crisis erupted, after demanding to be left alone – with no symmetric policy intervention – during the preceding boom. But managing the boom is more important, because it addresses what causes crises in the first place.
In a sense, what China has been doing seems to me to be the creation of a true “Keynesian world” – more private business and freer price competition at the micro level, and active countercyclical policy intervention at the macro level.
There may be other factors that could slow down or interrupt China’s growth. I only hope that policymakers’ vigilance will prevail (and be improved upon), enabling China’s high-growth story to continue for another 10, 20 or 30 years. – © Project Syndicate
Fan Gang is Professor of Economics at
Beijing University and the Chinese Academy of Social Sciences, director of China’s National Economic Research Institute, Secretary-General of the China Reform Foundation, and a member of the Monetary Policy Committee of the People’s Bank of China.
Subscribe to:
Posts (Atom)