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Making Unique Observations in a Very Cluttered World

Tuesday 29 September 2009

World Bank Head Sees Dollar’s Role Diminishing - days as an unchallenged economic superpower might be numbered

Reading - World Bank Head Sees Dollar’s Role Diminishing - days as an unchallenged economic superpower might be numbered - http://j.mp/JJPdI

WASHINGTON — The president of the World Bank said on Monday that America’s days as an unchallenged economic superpower might be numbered and that the dollar was likely to lose its favored position as the euro and the Chinese renminbi assume bigger roles.

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Win McNamee/Getty Images

Robert Zoellick said the Treasury should get more power.

“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” the World Bank president, Robert B. Zoellick, said in a speech at the School for Advanced International Studies at Johns Hopkins. “Looking forward, there will increasingly be other options to the dollar.”

Mr. Zoellick, who previously served as the United States trade representative and as deputy secretary of state under President George W. Bush, said that the euro provided a “respectable alternative” for financing international transactions and that there was “every reason to believe that the euro’s acceptability could grow.”

In the next 10 to 20 years, he said, the dollar will face growing competition from China’s currency, the renminbi. Though Chinese leaders have minimized their currency’s use in international transactions, largely so they could keep greater control over exchange rates, Mr. Zoellick said the renminbi would “evolve into a force in financial markets.”

The World Bank, which is financed by governments around the globe and lends money primarily to poor countries, has no say over the economic policies of large nations or over currency matters.

But Mr. Zoellick’s comments were unusual, in part because he seemed intent on being provocative. He argued that the United States and a handful of other rich nations could no longer dominate the world economy and suggested that America was losing its clout. He also took issue with a central piece of the Obama administration’s proposal regarding the country’s financial regulatory system.

“The greenback’s fortunes will depend heavily on U.S. choices,” Mr. Zoellick said. “Will the United States resolve its debt problems without a resort to inflation? Can America establish long-term discipline over spending and its budget deficit?”

Mr. Zoellick criticized President Obama’s plan to put the Federal Reserve in charge of reducing “systemic risk” and to regulate institutions considered too big to fail. Saying that Congress had become uneasy about the Fed’s exercise of emergency powers to bail out financial institutions and prop up credit markets, Mr. Zoellick argued that the Treasury rather than the Fed should get more power because the Treasury was more accountable to Congress.

“In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,” Mr. Zoellick said, adding that “the Treasury is an executive department, and therefore Congress and the public can more directly oversee how it uses any added authority.”

Sunday 27 September 2009

The ghost fleet of the recession - biggest and most secretive gathering of ships in maritime history

Reading - The ghost fleet of the recession - biggest and most secretive gathering of ships in maritime history -http://j.mp/119FoI

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year

The 'ghost fleet' near Singapore

The 'ghost fleet' near Singapore. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies

The tropical waters that lap the jungle shores of southern could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an officer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can't immediately put my finger on.

Then I have it - his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don't even bother the lowest mark on its Plimsoll line. It's the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them.

Simon Parry among the ships in southern Malaysia

Simon Parry among the ships in southern Malaysia

My ramshackle wooden fishing boat has floated perilously close to this giant sheet of steel. But the face is clearly more scared of me than I am of him. He shoos me away and scurries back into the vastness of his ship. His footsteps leave an echo behind them.

Navigating a precarious course around the hull of this Panama-registered hulk, I reach its bow and notice something else extraordinary. It is tied side by side to a container ship of almost the same size. The mighty sister ship sits empty, high in the water again, with apparently only the sailor and a few lengths of rope for company.

Nearby, as we meander in searing midday heat and dripping humidity between the hulls of the silent armada, a young European officer peers at us from the bridge of an oil tanker owned by the world's biggest container shipping line, Maersk. We circle and ask to go on board, but are waved away by two Indian crewmen who appear to be the only other people on the ship.

'They are telling us to go away,' the boat driver explains. 'No one is supposed to be here. They are very frightened of pirates.'

Here, on a sleepy stretch of shoreline at the far end of , is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers - all should be steaming fully laden between , Britain, and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia's rural Johor state, 50 miles east of Singapore harbour.

Fisherman Ah Wat

'We don't understand why they are here. There are so many ships but no one seems to be on board,' said local fisherman Ah Wat

It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies.

So they have been quietly retired to this equatorial backwater, to be maintained only by a handful of bored sailors. The skeleton crews are left alone to fend off the ever-present threats of piracy and collisions in the congested waters as the hulls gather rust and seaweed at what should be their busiest time of year.

Local fisherman Ah Wat, 42, who for more than 20 years has made a living fishing for prawns from his home in Sungai Rengit, says: 'Before, there was nothing out there - just sea. Then the big ships just suddenly came one day, and every day there are more of them.

'Some of them stay for a few weeks and then go away. But most of them just stay. You used to look Christmas from here straight over to and see nothing but a few passing boats. Now you can no longer see the horizon.'

The size of the idle fleet becomes more palpable when the ships' lights are switched on after sunset. From the small fishing villages that dot the coastline, a seemingly endless blaze of light stretches from one end of the horizon to another. Standing in the darkness among the palm trees and bamboo huts, as calls to prayer ring out from mosques further inland, is a surreal and strangely disorientating experience. It makes you feel as if you are adrift on a dark sea, staring at a city of light.

Ah Wat says: 'We don't understand why they are here. There are so many ships but no one seems to be on board. When we sail past them in our fishing boats we never see anyone. They are like real ghost ships and some people are scared of them. They believe they may bring a curse with them and that there may be bad spirits on the ships.'

Two container ships tied together in Sungai Rengit, southern Malaysia

Two container ships tied together in southern Malaysia, waiting for the next charter

As daylight creeps across the waters, flags of convenience from destinations such as and become visible. In reality, though, these vessels belong to some of the world's biggest Western shipping companies. And the sickness that has ravaged them began far away - in, where the industry's heart beats, and where the plummeting profits and hugely reduced cargo prices are most keenly felt.

The Aframax-class oil tanker is the camel of the world's high seas. By definition, it is smaller than 132,000 tons deadweight and with a breadth above 106ft. It is used in the basins of the , the North Sea, the Caribbean Sea, the China Sea and the - or anywhere where non-OPEC exporting countries have harbours and canals too small to accommodate very large crude carriers (VLCC) or ultra-large crude carriers (ULCCs). The term is based on the Average Freight Rate Assessment (AFRA) tanker rate system and is an industry standard.

A couple of years ago these ships would be steaming back and forth. Now 12 per cent are doing nothing

You may wish to know this because, if ever you had an irrational desire to charter one, now would be the time. This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).

This is why the chilliest financial winds anywhere in the City of London are to be found blowing through its 400-plus shipping brokers.

Between them, they manage about half of the world's chartering business. The bonuses are long gone. The last to feel the tail of the economic whiplash, they - and their insurers and lawyers - await a wave of redundancies and business failures in the next six months. Commerce is contracting, fleets rust away - yet new ship-builds ordered years ago are still coming on stream.

World shipping is tracked by satellite service Vesseltracker

World shipping is tracked by satellite service Vesseltracker

Just 12 months ago these financiers and brokers were enjoying fat bonuses as they traded cargo space. But nobody wants the space any more, and those that still need to ship goods across the world are demanding vast reductions in price.

Do not tell these men and women about green shoots of recovery. As Briton Tim Huxley, one of Asia's leading ship brokers, says, if the world is really pulling itself out of recession, then all these idle ships should be back on the move.

South China Sea map

'This is the time of year when everyone is doing all the Christmas stuff,' he points out.

'A couple of years ago those ships would have been steaming back and forth, going at full speed. But now you've got something like 12 per cent of the world's container ships doing nothing.'

Aframaxes are oil bearers. But the slump is industry-wide. The cost of sending a 40ft steel container of merchandise from China to the UK has fallen from £850 plus fuel charges last year to £180 this year. The cost of chartering an entire bulk freighter suitable for carrying raw materials has plunged even further, from close to £185,000 ($300,000) last summer to an incredible £6,100 ($10,000) earlier this year.

Business for bulk carriers has picked up slightly in recent months, largely because of China's rediscovered appetite for raw materials such as iron ore, says Huxley. But this is a small part of international trade, and the prospects for the container ships remain bleak.

Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a 'crisis of historic dimensions'. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London's biggest ship broker, says container shipping has been hit particularly hard: 'In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

'Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything - and it's come out of nowhere.'

These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

Large ships off the coastline close to Sungai Rengit

Lights from the fleet of ships illuminate the night-time horizon

But retailers are running on very low stock levels, not only because they expect consumer spending to be down, but also because they simply do not have the same levels of credit that they had in the past and so are unable to keep big stockpiles.

Stopford explains: 'Globalisation and shipping go hand in hand. Worldwide, we ship about 8.2 billion tons of cargo a year. That's more than one ton per person and probably two to three tons for richer people like us in the West. If the total goes down by five per cent or so, that's a lot of cargo that isn't moving.'

The knock-on effect of so many ships sitting idle rather than moving consumer goods between Asia and Europe could become apparent in Britain in the months ahead.

'We will find out at Christmas whether there are enough PlayStations in the shops or not. There will certainly be fewer goods coming in to Britain during the run-up to Christmas.'

Three thousand miles north-east of the ghost fleet of Johor, the shipbuilding capital of the world rocks to an unpunctuated chorus of hammer-guns blasting rivets the size of dustbin lids into shining steel panels that are then lowered onto the decks of massive new vessels.

As the shipping industry teeters on the brink of collapse, the activity at boatyards like Mokpo and Ulsan in all looks like a sick joke. But the workers in these bustling shipyards, who teem around giant tankers and mega-vessels the length of several football pitches and capable of carrying 10,000 or more containers each, have no choice; they are trapped in a cruel time warp.

There have hardly been any new orders. In 2011 the shipyards will simply run out of ships to build

A decade ago, South Korean President Kim Dae-jung (who died last month) issued a decree to his industrial captains: he wished to make his nation the market leader in shipbuilding. He knew the market intimately. Before entering politics, he studied economics and worked for a Japanese-owned freight-shipping business. Within a few years he was heading his own business, starting out with a fleet of nine ships.

Thus, by 2004, Kim Dae-jung's presidential vision was made real. His country's low-cost yards were winning 40 per cent of world orders, with second with 24 per cent and China way behind on 14 per cent.

But shipbuilding is a horrendously hard market to plan. There is a three-year lag between the placing of an order and the delivery of a ship. With contracts signed, down-payments made and work under way, stopping work on a new ship is the economic equivalent of trying to change direction in an ocean liner travelling at full speed towards an iceberg.

Thus the labours of today's Korean shipbuilders merely represent the completion of contracts ordered in the fat years of 2006 and 2007. Those ships will now sail out into a global economy that no longer wants them.

Maersk announced last week that it was renegotiating terms and prices with Asian shipyards for 39 ordered tankers and gas carriers. One of the company's executives, Kristian Morch, said the shipping industry was in uncharted waters.

As he told the global shipping newspaper Lloyd's List only last week: 'You have a contraction of oil demand, you have a falling world economy and you have a contraction of financing capabilities - and at the same time as a lot of new ships are being delivered.'

Demand peaked in 2005 when, with surplus tonnage worldwide standing at just 0.7 per cent, ship owners raced to order, fearing docks and berths at major shipyards would soon be fully booked. That spell of 'panic buying' has heightened today's alarming mismatch between supply and demand.

Keith Wallis, East Asia editor of Lloyd's List, says, 'There was an ordering frenzy on all types of vessel, particularly container ships, because of the booming trade between Asia and Europe and the United States. It was fuelled in particular by consumer demand in the UK, Europe and North America, as well as the demand for raw materials from China.'

Cranes at Singapore Dock stand idle, waiting for work

Cranes at Singapore Dock stand idle, waiting for work

Orders for most existing ships to be delivered within the next six to nine months would be honoured, he predicted, and the ships would go into service at the expense of older vessels in the fleet, which would be scrapped or end up anchored off places like southern Malaysia.

But, says Wallis, 'some ship owners won't be able to pay their final instalments when the vessels are completed. Normally, they pay ten per cent down when they order the ship and there are three or four stages of payment. But 50 to 60 per cent is paid on delivery.'

South Korean shipyard Hanjin Heavy Industries last week said it had been forced to put up for sale three container ships ordered at a cost of £60 million ($100 million) by the Iranian state shipping line after the Iranians said they could not pay the bill.

'The prospects for shipyards are bleak, particularly for the South Koreans, where they have a high proportion of foreign orders. Whole communities in places like Mokpo and Ulsan are involved in shipbuilding and there is a lot of sub-contracting to local companies,' Wallis says.

'So far the shipyards are continuing to work, but the problems will start to emerge next year and certainly in 2011, because that is when the current orders will have been delivered. There have hardly been any new orders in the past year. In 2011, the shipyards will simply run out of ships to build.'

Christopher Palsson, a senior consultant at London-based Lloyd's Register-Fairplay Research, believes the situation will worsen before it gets better.

'Some ships will be sold for demolition but the net balance will be even further pressure on the freight rates and the market itself. A lot of ship owners and operators are going to find themselves in a very difficult situation.'

The current downturn is the worst in living memory and more severe even than the slump of the early Eighties, Palsson believes.

'Back then the majority of the crash was for tankers carrying crude oil. Today we have almost every aspect of shipping affected - bulk carriers, tankers, container carriers... the lot.

'It is a much wider-spread situation that we have today. China was not a major player in the world economy at that time. Neither was . We had the Soviet Union. We had shipbuilding in the and Europe.

'But then, back in those days the world was a very different place.'


Read more: http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html#ixzz0SLeTy6Uy

Saturday 26 September 2009

Congressman Ron Paul - Should We Abolish the Federal Reserve?

Reading - Congressman Ron Paul - Should We Abolish the Federal Reserve? - http://j.mp/1AGVpX


Not since 1833 have there been calls to abolish a United States bank. At the time, it was President Andrew Jackson who succeeded in abolishing The Second Bank of the United States. Today it is Congressman Ron Paul of Texas who is calling for an end to the Federal Reserve.

Paul lays out his thesis in his new book, End the Fed, in which he calls for an audit, and then an end to the Federal Reserve. I recently interviewed Rep. Paul about ending the Fed, his thoughts on the dollar, and financial regulatory reform.

Paul thinks the Fed is the root cause of the financial crisis and what permitted exorbitant risk-taking by companies ranging from Bank of America (NYSE: BAC) to Citigroup (NYSE: C) and from Morgan Stanley (NYSE: MS) to AIG (NYSE: AIG). He believes abolishing the Fed would spur people to save more and become more prudent with their finances because free market forces, instead of a central bank, would set interest rates, limiting the amount of credit in the economy.

He is in favor of returning to the gold standard and believes an end to the Fed will put an end to the dollar's long-trending depreciation. Paul also calls for more regulation on the government and not the markets.

What follows is an edited transcript of the interview.

Jennifer Schonberger: In the wake of the financial crisis, some in Congress want to give even greater power to the Fed. You want to abolish the Fed. Why?

Congressman Ron Paul: Because they caused all the trouble. A monetary policy of easy credit and artificially low interest rates was the main source of the financial bubble, and the correction is always trying to fix what the Federal Reserve has done. The only way you can address the business cycle and prevent wild swings in the business cycle is by addressing the Federal Reserve and how they cause nothing but mischief.

Schonberger: Would you put something else in place of the Fed, or revert to a laissez-faire approach and let the free market forces play out?

Paul: Yes, I believe in free markets. We don't have free markets and haven't had them. So it's convenient for people to blame the free market for the problems, but that's a fallacy. In a free market, capital would come from savings. People put their money in a savings account or something of real value, and that determines the interest rates.

When people don't save, like we as a nation have not saved for many decades, there is this illusion that there is still so-called capital, or money made for investments. [In reality] that capital came from a computer at the Federal Reserve. Therefore it sent the wrong information to businesses and savers, claiming that there was a lot of savings out there. Based on that, people overinvested and built too many houses. It's the Federal Reserve that sends out the incorrect information.

Schonberger: So this would be a world with less credit, would it not?

Paul: Yes, there would be less credit, but it would still be steady growth. You would never have periods of economic tumult if you had economic growth of 4% or 5% -- so you would never have the temptation to turn it off. … There would be enough credit, but there wouldn't be an excess amount. … It would be determined by the marketplace rather than by the artificialness of the Federal Reserve.

Schonberger: In terms of getting people to save more, what are your thoughts on the consumption-based value-added tax that's been talked about recently?

Paul: It'd be a disaster. Most people from the Keynesian side are always arguing that the main driving force of the whole economy is consumption. In free market economics, it's savings, building capital, and buying things that have value. Consumerism can be artificial if it comes in the form of easy credit from the Federal Reserve. So, if you're going to try to stimulate consumerism, and on the other hand tax it, it doesn't make any sense at all.

Schonberger: What is the biggest downside risk to abolishing the Fed?

Paul: I don't know of any risk. The biggest challenge is that people might not understand it. If there are problems they might blame the problems on getting rid of the Fed. The problem would really be coming from the fact that we had it … The first year would be tough. The problems would be due to the fact that the Fed would cause so much harm in the correction phase, which is always necessary.

Schonberger: Our economy is increasingly tied to economies around the world. What would eliminating the Fed mean for the global economy?

Paul: It depends what you replace it with. If you allow the market to replace it with commodity money and make sure various countries believe in free trade, tariffs should go down, and free trade should reign. You should be able to have much freer travel, so it would be a real move towards globalism and global trade. If only one country does it, there's more of a challenge, and only the person who goes onto the gold standard would benefit.

Schonberger: You're of the belief that abolishing the Fed will thwart the dollar's long-trending depreciation. Explain to me how that works.

Paul: There's no dilution factor. In my book, I use the example of when I was a kid and my dad always had to check to make sure the milk wasn't diluted. Sure, it stretches the milk, but it doesn't stretch the quality. This would be the most important thing for eliminating the problems that the Fed has created.

Governments want to spend more than they have and go to war when they shouldn't, and the only way they can finance it is through the printing press. The period of time when the world accepted a notion of an international gold standard was a time of tremendous economic growth.

Schonberger: You've introduced HR 1207, the Federal Reserve Transparency Act, in which the Comptroller General audits the Fed and then gives a detailed report to Congress. What are the odds for passage? Do you think you'll be able to get legislation through the House this fall?

Paul: It's very, very popular. Every Republican in the House has signed on, and 111 Democrats have signed on. We have over 290, which in theory means that it could pass under suspension because we already have two-thirds in Congress as co-signers of the bill. … It depends on the opposition, but I think there's a very good chance it will get passed.

Schonberger: Are you at all concerned that auditing the Fed would open up the central bank to the political process and subject the bank to making monetary policy decisions based on lobbyists, politicians, and special interest groups, rather than the necessary economics?

Paul: That's the argument the opposition uses. But they want to use the political influence that they already have because it's been in secret. If you have a political influence of a company like Goldman Sachs (NYSE: GS) that can manipulate the benefits toward them and away from Lehman Brothers, that's political, too.

It's been known for decades that the chairman of the Federal Reserve Board always accommodates a president and tries to have the right part of a cycle come up for election time. But, the audit bill has nothing to do with managing monetary policy.

Schonberger: Briefly, Congressman, how should we reform the financial regulatory framework besides ending the Fed? In terms of regulatory structure, what about ending the SEC? Certainly the SEC dropped the ball, as did the CFTC. How do we rectify the system?

Paul: I admit the SEC was a total failure. Now people have this moral hazard of saying "It's OK, the SEC has looked at their books." That encourages people to make mistakes. People should be much more cautious.

What you want is more regulation of the government -- the Federal Reserve and on Treasury -- not to interfere in the markets. We should let bankruptcy laws work. The most important way to regulate markets is to never prop up the bad investments. Regulation should be defined as enforcing contracts, no fraud, and making sure the government doesn't interfere for the benefit of special interests.

Let state laws take care of fraud cases. Insurance and ratings would all be market-oriented.