Rootsie

The power shift to the East: The 'American Century' is ending
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18.05.2006 Source:           
 
 
Pages: 1234567
 
(Continued. read Part III of the article here)

The world economic landscape is rapidly changing and a very different world is emerging. It is perhaps too early to tell whether the US and the EU will head down toward geopolitical rivalry, but the warning signs are certainly present. The rise of euro and the resulting competition with the American dollar will have geopolitical consequences. In the near future, the US and Europe are likely to engage in more intense competition over global trade and finance. A more assertive and dynamic Europe and a less competitive American economy do make it likely that trade disputes will become more politicised.


None of these political-economic trends could plausibly lead to armed conflict between the US and Europe, of course. But any one of them could result in a dramatically different world than the one we live in today.

In 20 years time, however, by 2025, America and Europe may both be spending much more time worrying about the rise of Asia than about each other. Even without a collapse of the dollar hegemony, there seems to be satisfactory evidence for a great and rapid shift of wealth and power to China and India. Currently, the economic power of China and India is growing at three to five times the GDP rate of Western states. The transfer of power from the West to the East is gathering pace since the late 1990s, and Washington think-tanks have been publishing thick white papers charting Asia's, and China's in particular, rapid progress in microelectronics, nanotech, and aerospace, and printing gloomy scenarios about what it means for America's global leadership. The American administration considers China as a potential 'strategic competitor' and has exerted enormous pressure on it since the early 1990s. One flash point with the US is China's fast growing demands for oil. China was the world's second largest consumer of petroleum products in 2004, having surpassed Japan for the first time in 2003, with total demand of 6.5 million barrels per day (bbl/d). China's oil demand is projected by EIA to reach 14.2 million bbl/d by 2025, with net imports of 10.9 million bbl/d.

source: http://english.pravda.ru/opinion/feedback/18-05-2006/80536-east-0 (http://english.pravda.ru/opinion/feedback/18-05-2006/80536-east-0)

"As Peter Drucker observed shortly before his death, the savviest way for future companies to go is probably to outsource all functions that do not lead to a position in senior management. The big players of the current age are getting small as fast as they can.

Even traditional behemoths like the oil majors are becoming less like behemoths and more like raw capital allocators. When BP announces plans to invest $8 billion in alternative energy, it is acting more like a hedge fund trading on its industry knowledge than a lumbering giant exploiting its size. Similarly, Wal-Mart is essentially an information network, utilizing its knowledge and its clout to bring tens of thousands of suppliers together in a profitable collaboration.

The edge is in getting smaller and leaner, outsourcing nonessential tasks and jettisoning excess baggage entirely. This will apply to governments as much as companies in the long run; rather than enjoying captive capital, governments will have to go out and win it. In the new post-collapse environment, the number of competitive jurisdictions will thus multiply as large governments lose their capital accumulation edge to smaller ones.

(Article continues below)

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Successful governments in this hyper-competitive environment will be customer service providers rather than shakedown operations; they will have to provide more value for money as capital flows become all the more mobile and hard to pin down. This shift will naturally favour sound money.

The gold standard: How it would work
Sound money naysayers argue that a gold standard cannot work in today's modern global economy. They declare the gold straitjacket too fiscally restrictive. They warn that there is not enough gold in the world to properly grease the wheels of commerce. But the naysayers wrongly assume that a gold-based system cannot contain leverage.

Leverage is like nitroglycerin - dangerous in the hands of idiots, but highly useful to the skilled. The whole reason fiat currencies came about is because 20th- century governments realized the power of leverage as applied to existing assets. Giving politicians free rein to leverage the moon via fiat currency was stupid, but the baby need not be thrown out with the bathwater.

Leverage can be a good thing if applied in the correct fashion; when an entrepreneur borrows a small sum and turns it into a much larger sum by using it wisely, he has made beneficial use of leverage, and added value to society at the same time.

The use of leverage itself is not a bad thing except when abused. An example of a model system for preventing abuse of leverage is the modern-day futures industry.

Through rigorous self-regulation and mandatory self- insurance against financial accidents, the futures industry has shown how leverage can be applied sensibly, with a focus on two key elements: transparency and mutual responsibility.

Governments cannot be trusted to apply leverage responsibly, but private entities could - under the watchful eye of investors and deposit holders, who would have a personal interest in maintaining vigilance and bear direct financial responsibility for any failure. Remove the moral hazard of a federally subsidized blank check to cover losses and you immediately reintroduce private-party vigilance.

The same logic applies to banks and bank panics.

Historic bank panics of the past were largely fueled by two things: 1) a lack of fiscal transparency, making it hard for investors and depositors to be aware of unsafe habits and practices, and 2) the moral hazard of guaranteed government bailout, allowing banks to go wild knowing Uncle Sam would step in if things went bad.

A sound money system policed by private creditors - without the moral hazard of government influence - could make use of leverage responsibly and well, without undue political pressures. A transparent rate of exchange could be maintained at all times, giving depositors assurance that their electronic balance could always be exchanged for physical metal. Total leverage levels of the institution could be posted and observed by all, allowing the market to police itself in real time. And the institution could voluntarily maintain membership in a mutual-responsibility insurance system, similar to the futures industry clearing system that provides a pool of assets for emergency situations.

These types of advances could only be implemented through a combination of investor savvy and advanced technology, both of which are developing here and now."

How the dollar's collapse will lead to a new gold standard
17.05.2006

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On our way to a post-collapse, post-dollar world, Asia will likely transition from a de jure dollar standard to a de facto gold standard. This will happen in stages as the dollar crumbles; Asian countries and consumers will accumulate gold reserves surreptitiously at first, and may eventually formalize the transition through some sort of pan-Asian IMF-type arrangement.


How badly will the weak dollar hit the US economy?
 The US is suffering from a massive current account deficit, unequalled by any other major developed country. An adjustment is inevitable, says Jeremy Batstone at Charles Stanley - in fact, it's already...
The gold standard: The rise of Asia
Asia has the "second mover advantage" of being privy to all the Western World's mistakes. They are able to see where profligacy and runaway entitlement programs have led. Their top-down orientation will enable them to rein in expensive entitlement programs or, better yet, curtail young ones before they grow bigger. Not being as mentally and emotionally tied to the workings of empire and the capitalist welfare mentality, Asia will successfully cut the cord faster. In doing so, Asia will also rely on its citizens' natural propensity to trust precious metals and hoard them as a store of value in the first place.

Last but not least, Asia's relative lack of capital market structure - its underdeveloped backbone of lending networks - will make a de facto gold standard that much more attractive. By going straight to gold, Asians get the "trust" that is already built into the metal...they can skip all the financial engineering, or get to working it in later.

While Keynesians see the rise of gold as temporary - and will continue to assert their naysayer views as gold rises further - it will soon come to light that the 'world reserve currency' idea was the temporary thing, an anachronism of the industrial age.

The world reserve currency concept is tied to the notion of a single all- powerful superpower. That is a 20th-century idea that is going away. It is also tied to the idea of a single economic powerhouse striding atop the rest of the world. That idea is going away too.

Even if China becomes the new manufacturing Boss Hoss of the 21st century, it will not wield the same economic heft as America did in the 20th or Britain did in the 19th. There are too many competitors for that now. To the degree that China's power comes as a cheap manufacturing destination, it will always be one price cut away from noncompetitiveness with India or the rest of the Asian nations, and eventually the Middle East, South America, Africa, etc....economy of scale is simply no longer the powerhouse edge that it used to be. The agglomeration of industrial and political power seen in the 20th century will likely vanish into the pages of history. The concept of 'world reserve currency' may well vanish with it.

The gold standard: Why there is no real alternative to the dollar
Gold is also a contender because the alternatives for replacing the dollar look so weak. The euro has its own set of long-term problems, in some ways more severe than those of the dollar. Over the next decade or two, Europe will be dealing with a declining population, a lack of defensive capability, social unrest due to immigration and cultural segregation and the fiscal cement shoes of an out-of-control welfare state. Nor is the yen ready for prime time, with Japan's economic behavior erratic and the Bank of Japan viewed as incompetent. China's yuan is not yet supported by a fully functional financial infrastructure and has too long been pegged to the dollar to suddenly go it alone.

Gold, on the other hand, steps up with a number of advantages. It is already regarded as a hard asset safe haven and a key barometer of financial anxiety. Its value is easily understood and appreciated by the masses. It can function without the need for a complex financial system to guide and regulate transactions.

Asia could well be the vanguard for a new gold standard because of internal dynamics. China is exemplary in this regard in that Chinese citizens regularly save as much as 40% of their personal income. This is in large part due to the lack of a safety net in China. There is no Social Security, no guaranteed medical care, no pension benefits and so on. Many of China's less-connected citizens seem as likely to bury their wealth in a shoebox as put it in a bank. This mindset strongly favors a physical, storable asset, like gold.

Einstein once said, "Everything should be made as simple as possible, but not simpler." That could well be a capitalist adage, with "small" substituting for "simple." The less bureaucracy, the better; the more flexibility, the better. Both are attributes of being lean and small, not fat and huge.

As Peter Drucker observed shortly before his death, the savviest way for future companies to go is probably to outsource all functions that do not lead to a position in senior management. The big players of the current age are getting small as fast as they can.

Even traditional behemoths like the oil majors are becoming less like behemoths and more like raw capital allocators. When BP announces plans to invest $8 billion in alternative energy, it is acting more like a hedge fund trading on its industry knowledge than a lumbering giant exploiting its size. Similarly, Wal-Mart is essentially an information network, utilizing its knowledge and its clout to bring tens of thousands of suppliers together in a profitable collaboration.

The edge is in getting smaller and leaner, outsourcing nonessential tasks and jettisoning excess baggage entirely. This will apply to governments as much as companies in the long run; rather than enjoying captive capital, governments will have to go out and win it. In the new post-collapse environment, the number of competitive jurisdictions will thus multiply as large governments lose their capital accumulation edge to smaller ones.

(Article continues below)

Advertisement
 
Successful governments in this hyper-competitive environment will be customer service providers rather than shakedown operations; they will have to provide more value for money as capital flows become all the more mobile and hard to pin down. This shift will naturally favour sound money.

The gold standard: How it would work
Sound money naysayers argue that a gold standard cannot work in today's modern global economy. They declare the gold straitjacket too fiscally restrictive. They warn that there is not enough gold in the world to properly grease the wheels of commerce. But the naysayers wrongly assume that a gold-based system cannot contain leverage.

Leverage is like nitroglycerin - dangerous in the hands of idiots, but highly useful to the skilled. The whole reason fiat currencies came about is because 20th- century governments realized the power of leverage as applied to existing assets. Giving politicians free rein to leverage the moon via fiat currency was stupid, but the baby need not be thrown out with the bathwater.

Leverage can be a good thing if applied in the correct fashion; when an entrepreneur borrows a small sum and turns it into a much larger sum by using it wisely, he has made beneficial use of leverage, and added value to society at the same time.

The use of leverage itself is not a bad thing except when abused. An example of a model system for preventing abuse of leverage is the modern-day futures industry.

Through rigorous self-regulation and mandatory self- insurance against financial accidents, the futures industry has shown how leverage can be applied sensibly, with a focus on two key elements: transparency and mutual responsibility.

Governments cannot be trusted to apply leverage responsibly, but private entities could - under the watchful eye of investors and deposit holders, who would have a personal interest in maintaining vigilance and bear direct financial responsibility for any failure. Remove the moral hazard of a federally subsidized blank check to cover losses and you immediately reintroduce private-party vigilance.

The same logic applies to banks and bank panics.

Historic bank panics of the past were largely fueled by two things: 1) a lack of fiscal transparency, making it hard for investors and depositors to be aware of unsafe habits and practices, and 2) the moral hazard of guaranteed government bailout, allowing banks to go wild knowing Uncle Sam would step in if things went bad.

A sound money system policed by private creditors - without the moral hazard of government influence - could make use of leverage responsibly and well, without undue political pressures. A transparent rate of exchange could be maintained at all times, giving depositors assurance that their electronic balance could always be exchanged for physical metal. Total leverage levels of the institution could be posted and observed by all, allowing the market to police itself in real time. And the institution could voluntarily maintain membership in a mutual-responsibility insurance system, similar to the futures industry clearing system that provides a pool of assets for emergency situations.

These types of advances could only be implemented through a combination of investor savvy and advanced technology, both of which are developing here and now.

By Justice Litle for The Daily Reckoning.

The editor of Outstanding Investments has worked with soybean farmers, cattle ranchers, energy consultants, currency traders, scrap metal dealers and everyone in between, including multiple hedge funds. Mr Litle also acted as head trader for a private equity partnership, and contributed to Trend Following, a popular trading book by Mike Covel (FT/Prentice Hall, 2004). You can read more from Justice and many others at www.dailyreckoning.co.uk.


source: http://www.moneyweek.com/file/12641/how-the-dollars-collapse-will-lead-to-a-new-gold-standard.html (http://www.moneyweek.com/file/12641/how-the-dollars-collapse-will-lead-to-a-new-gold-standard.html)

http://www.moneyweek.com/file/12541/warren-buffett-isnt-buying-american---should-you.html (http://www.moneyweek.com/file/12541/warren-buffett-isnt-buying-american---should-you.html)

perhaps the cat is coming out of the bag . . . it would seem from these articles that we are experiencing a major shift away from the nation-state to the full implementation of a globalized economy where private capitalist organizations are the arbiters.



 

i think the phrase "i told you so" is rather apt at this moment. . .

________________________________________________

NYSE Group said its purchase of Euronext, which runs the Paris, Brussels,
Amsterdam and Lisbon exchanges, would create "the world's largest and most liquid global securities marketplace" with combined listings of $27 trillion. The combined company, worth $21 billion, would be called NYSE Euronext.

http://www.usatoday.com/money/markets/2006-05-22-nyse-europe_x.htm?csp=24 (http://www.usatoday.com/money/markets/2006-05-22-nyse-europe_x.htm?csp=24)

NYSE proposes merger with Euronext stock exchange
Updated 5/22/2006 3:23 PM ET E-mail | Save | Print | Subscribe to stories like this   
 
 
 Enlarge By Pierre Verdy, AFP
 
John Thain, chairman and chief executive officer of the New York Stock Exchange at the World Economic Forum in Switzerland last year.
 

PARIS (AP) — The New York Stock Exchange (NYX), seeking to beat rival Nasdaq Stock Market in the race to become the first trans-Atlantic stock market, offered $10.2 billion in cash and shares Monday for European exchange operator Euronext, which declared the bid to be the best option on the table.

NYSE Group said its purchase of Euronext, which runs the Paris, Brussels, Amsterdam and Lisbon exchanges, would create "the world's largest and most liquid global securities marketplace" with combined listings of $27 trillion. The combined company, worth $21 billion, would be called NYSE Euronext.

The acquisition would allow the NYSE Group to enter into futures and derivatives trading, as well as European stock trading. Combined with its current electronic options trading, the NYSE would be able to deal in stocks, options, futures, commodities and corporate bonds on two continents, up to 12 hours a day — a broad mix that could appeal to major institutional investors as a one-stop trading platform.

Euronext, which holds its annual shareholders meeting Tuesday, issued a statement after its board meeting Monday saying "the transaction with NYSE currently offers the most attractive combination," but it stopped short of a formal recommendation to shareholders. Shareholders will be asked for their views on both proposals before management makes a formal recommendation, the company said.

The offer comes amid global efforts to consolidate exchanges that began in earnest March 30, when The Nasdaq Stock Market Inc. made a $4.5 billion bid for the London Stock Exchange. The Nasdaq, which was rebuffed, has since acquired more than 25% of the LSE, prompting Euronext to call off its long-running interest in the British exchange. The Nasdaq's moves have also pressured the newly public NYSE to find a European partner.

Under the 8 billion euro ($10.2 billion) NYSE proposal, each NYSE share would be converted into one share of common stock of the new combined company NYSE Euronext.

Holders of Euronext ordinary shares would be offered the right to exchange each of their shares for 0.980 shares of NYSE Euronext stock and 21.32 euros ($27.22) in cash. Based on the NYSE's closing price Friday of $64.50, that values each Euronext share at 70.80 euros ($90.39) — below the Friday close of 74.60 euros ($95.24).

NYSE Chief Executive John Thain said the NYSE would most likely have to issue its own bonds, borrowing at least some of the $3 billion necessary for Euronext shareholders. The NYSE Group currently has about $650 million in cash available. Thain said the exchange operator would be able to completely pay off any debt within three years.

Euronext said that over the weekend, it received further details of Deutsche Boerse's proposal made Friday, which had not contained specific financial terms. DB clarified that the value of its offer would be based on the two groups' average share price over the three months leading up to the closure of a deal. At Friday's closing prices, the offer would have been worth about 64 euros ($82) per Euronext share.

Deutsche Boerse issued a statement Monday denying a report that it would consider an all-share offer valuing Euronext at about 90 euros ($115) a share, but said it remains in contact with Euronext.

Deutsche Boerse shares fell 8.5% to close at 101.30 euros ($129.48) in Frankfurt before the Euronext statement was issued. Euronext shares dropped 9.5% to euro67.55 (US$86.34) in Paris, while in New York, NYSE shares fell 2.6% to $62.83.

According to terms proposed by the NYSE, the company would have its group headquarters at the NYSE's current base in New York and European headquarters at Euronext's base. The chairman of the combined company would be current Euronext Chairman Jan-Michiel Hessels, while NYSE Group Chief Executive John Thain would continue as CEO. The board of a combined company would include 11 directors from NYSE and nine from Euronext.

"NYSE Euronext will be the world's most liquid and truly global financial marketplace, offering unparalleled benefits for investors and issuers in the United States, Europe and across the globe," Thain said.

Each of the companies' markets would come under the jurisdiction of local regulators — a move that seemed aimed at addressing concerns that European exchanges would have to comply with stricter U.S. market rules. NYSE Euronext common stock would be listed on the New York Stock Exchange and Euronext.

The NYSE said the proposed combination would result in cost savings of $375 million, saying that would create substantial value for all shareholders.

The transaction terms also assume Euronext will pay to its shareholders its ordinary dividend of 1 euro ($1.28) per share this year and its previously announced extraordinary dividend of 3 euros ($3.83) per share.

The NYSE's move comes less than three months after it concluded its purchase of the former Archipelago Holdings Inc., an all-electronic stock market, and transformed itself from a not-for-profit into a publicly traded company. Even prior to the March 7 start of trading in NYSE Group stock, Thain had said NYSE Group would look for acquisitions abroad.

Thain said there was no plans to do away with the NYSE's specialist system, in which human auctioneers help facilitate the buying and selling of stocks. However, Thain noted that while Euronext's exchanges make use of specialists, they do so electronically. The NYSE is the only major stock exchange left in the world which humans physically interact. While Thain said he remained committed to the specialist system, he did not say whether those specialists would move to electronic trading.

Contributing: Associated Press Writer Angela Charlton and Business Writer Laurence Frost in Paris

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Posted 5/22/2006 3:28 AM ET