Expanding Markets for Musicians

Surprisingly, a post titled "Between A Rock and a Hard Place" on Communication Breakdown recently detailed the emerging markets for U.S. musicians outside of the country. Specifically, it detailed the expansion of popular artists such as Avril Lavigne and Linkin Park into countries such as China. This is exemplified by sold out venues and concerts in the country by these artists as well as increased international sales. What is most interesting in this post is the link to the New York Times article "Western Pop Acts in China" which discusses the challanges and frustrations felt by Western music producers attempting to go abroad into countries such as China.

What works in China, however, can sometimes conflict with the larger goals of Western businesses. Linkin Park is among the biggest foreign bands in China, but its label, Warner Brothers, has not released its latest CD there. And despite recent tours by Nine Inch Nails, Sonic Youth and the Yeah Yeah Yeahs, the Chinese division of Universal has not released their records either. The labels say that piracy has made the effort futile. The International Federation of the Phonographic Industry, a trade group, estimates that 85 percent of the CDs sold in China are counterfeit. Leong Mayseey, the federation’s regional director for Asia, says the piracy rate for downloaded songs is close to 100 percent.

These first hand accounts of doing business in China display the need for increased criticism upon the Chinese government for intellectual property rights. This is a central need for any economy to attract foreign investment and the musicians demonstrate personally just how difficult selling their product in emerging economies still is.

Time For Change?

As the U.S. Federal Reserve lowered interest rates by a quarter percentage point this week, a number of countries in the Middle East followed suit. Specifically, countries such as Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and Bahrain adhered to the Fed’s decision, because their currencies are pegged to the dollar. This is undoubtedly the case for most of the Persian Gulf nations that are now facing severe inflation. “The combination of soaring oil prices and the tumbling dollar is distorting their economies and fuelling inflation,” according to the latest print edition of the Economist.

These concerns over inflation in all of the oil-rich states suggest that central banks should in fact be raising, not lowering rates. However, “monetary policy in the Persian Gulf states must mirror U.S. moves to avoid pressures from capital drifting to the currency with the most favorable interest rates” (Critchlow) .Consequently, economists believe that with enough pressure the Gulf states may soon break free from the dollar.

In fact, in September Saudi Arabia decided not to lower interest rates in tandem with the U.S. Federal Reserve (Gaffen). One only has to look so far to notice that the entire Gulf region is diversifying away from the dollar. This phenomenon is particularly true, because of the increasing number of oil exports at extraordinary prices. Further, with plenty of money flowing into these states’ coffers, pegging their currency to a depreciating currency is becoming less and less attractive.

Thus, the question arises: Should the region’s economies continue to tie their currency to the greenback? The original purpose for doing so was due to the financial immaturity of these states and lack of monetary experience. Determining the right interest rates to most optimally match a country’s savings with investments is tricky due to a typical central bank’s contrary goals of fighting inflation while creating economic growth.

The fact of the matter is that due to the Gulf Arabs soaring oil revenues, “their real exchange rates ought to rise” (“The dollar | Time to break free”). The peg to the dollar prevents this and as the value of the dollar falls, inflation has become a larger problem. Today, the U.S. inflation rate hovers around 4 to 5 percent on average since the economies two recessions during the 1980s. However, “some smaller Gulf economies now have inflation rates of around 10%” (“The dollar | Time to break free).

In my opinion, there are two ways to respond to the problem. The first is for the Persian Gulf states to abandon their peg to the dollar and instead move to a currency basket as Kuwait has already done. A basket of securities may include the dollar in addition to the euro, yen, and other strong currencies. Thus, the inflationary pressure exerted by the dollar would be alleviated.

A second option is to all together abandon ties to any currency. This is the optimal solution that requires a strong central bank that would allow its exchange rate to float as well developed countries already do so. However, “These countries have no history of independent monetary policy and few institutions to conduct it” (“The dollar | Time to break free).

Nonetheless, the Gulf states currently have their hands tied behind their backs and are effectively linked to the dollar. Should history provide any glimpse into the future, this certainly will not change overnight.

Female Empowerment Good For The Economy?

A very interesting post on The Global Scoop explains how empowering women leads to economic development. According to the author, "the international community has acknowledged the fact that achieving gender equality and empowering women is not only a goal in itself. It is also a condition for advancing development, peace, and security. As set forth by the eight Millennium Development Goals (MDGs), gender equality is one of the main objectives to be achieved by 2015. Nevertheless, as the Deputy Secretary-General claims, “Study after study has shown us that, when women are fully empowered and engaged, all of society benefits. Only in this way can we successfully take on the enormous challenges confronting our world -- from conflict resolution and peace building to fighting AIDS and reaching all the other Millennium Development Goals.” Therefore, it seems that there is much more to do in order accomplish these MDGs. Though the goals sound extraordinary on paper, making real world progress is complicated and complex; financial support as wells societal changes must be coordinated to achieve such goals."

Indeed, this idea is now widely recognized and of the utmost importance for the world's continued advancement. However, what made this post most interesting was that it set forth prerequisites for this development in the gender role of females to continue. Specifically, the following conditions must be met:

Ensuring that men take on a greater role in household and family care
Challenging traditions and customs, stereotypes and harmful practices, that stand in the way of women and girls
Ensuring that women have access to education and health care, property and land;
Investing in infrastructure to make it easier for women and girls to go about the daily business of obtaining safe drinking water and food
Integrating gender issues into the follow-up to United Nations resolutions and decisions including the work of recently established bodies such as the Peace Building Commission and the Human Rights Council.

Thus, governments, thinktanks, international organizations, and every individual should strive hard to enable these goals being met. This is of the upmost importance not just for female empowerment, but for economic development

The Envy of Wall Street

While billions are lost during the ongoing credit crisis, one firm stands alone and continues to make bets that thus far have paid off hugely. This Wall Street investment bank and it's chief financial officer identified the risks associated with packaging and selling mortgage related securities before anyone else. If anyone had to take a guess, I'm sure they would pick Goldman Sachs and they would be right. According to the following New York Times article, their CFO David A. Viniar late last year called a “mortgage risk” meeting in his meticulous 30th-floor office in Lower Manhattan.

At that point, the holdings of Goldman’s mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.

With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman’s hard-nosed, go-it-alone style.

Most of the firm’s competitors, meanwhile, with the exception of the more specialized Lehman Brothers, appeared to barrel headlong into the mortgage markets. They kept packaging and trading complex securities for high fees without protecting themselves against the positions they were buying.

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.

When the credit markets seized up in late July, Goldman was in the enviable position of having offloaded the toxic products that Merrill Lynch, Citigroup, UBS, Bear Stearns and Morgan Stanley, among others, had kept buying.

“If you look at their profitability through a period of intense credit and mortgage market turmoil,” said Guy Moszkowski, an analyst at Merrill Lynch who covers the investment banks, “you’d have to give them an A-plus.”

This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust.

In turn, Goldman’s stock has significantly outperformed its peers.

I can only imagine the envy every other Wall Street CEO has for Lloyd C. Blankfein, Goldman's chief executive.

I found this article particularly interesting, because it shows the type of individualistic, go it alone attitude that characterizes one of the world's most successful companies. This success has carried on into all walks of life both inside and outside the business world.

In case you didn't hear, last week two Goldman managing directors helped bring Alex Rodriguez back to the Yankees. Also, "John A. Thain, a former Goldman co-president, accepted the top position at Merrill Lynch, while a fellow Goldman alumnus, Duncan L. Niederauer, took Mr. Thain’s job running the New York Stock Exchange. Robert E. Rubin, a former Goldman head, is the new chairman of Citigroup. In Washington, another former chief, Henry M. Paulson Jr., is the Treasury secretary, having been recruited by Joshua B. Bolten, the White House chief of staff and yet another former Goldman executive. The heads of the Canadian and Italian central banks are Goldman alumni. The World Bank president, Robert B. Zoellick, is another. Jon S. Corzine, once a co-chairman, is the governor of New Jersey. And in academia, Robert S. Kaplan, a former vice chairman, has just been picked as the interim head of Harvard University’s $35 billion endowment."

For all its success on Wall Street, it is Goldman’s global reach and political heft that inspire a mix of envy and admiration. In the race for president, Goldman Sachs executives are the top contributors to Barack Obama and Mitt Romney, and the second highest contributor to Hillary Rodham Clinton.

All of which has made Goldman a favorite of conspiracy theorists, columnists and bloggers who see the firm as a Wall Street version of the Trilateral Commission.

“Goldman Sachs has as much influence now that the old J. P. Morgan had between 1895 and 1930,” said Charles R. Geisst, a Wall Street historian at Manhattan College. “But, like Morgan, they could be victimized by their own success.”

The power of this company throughout the world is simply mind numbing to me.

Globalization and Protectionism

Although the recent free-trade deal with Peru passed by the Democrat-controlled Congress is a step in the right direction, the United States has a lot more work to accomplish. This symbolically important step is supposed to be a sign of fewer barriers to trade in the future. As such, “George Bush's administration hopes other bilateral deals will follow, as a new bipartisan consensus on trade develops” according to a recent article in the Economist (“Economic focus | Buying off the Oposition”).

However, this is unlikely to happen. This is despite the fact that global trade is a confirmation of the time-tested theory by Adam Smith in 1776: “Individuals trading freely with one another following their own self-interest leads to a growing, stable economy” (Greenspan). This model of optimal market efficiency occurs only when its fundamental requirements are at work. Specifically, people must be free to act in their self-interest, unfettered by economic policy. An example of such a mistaken policy includes any government action or regulation that limits international trade.

Unfortunately, America is leaning towards just such a shift in opinion. The Peru negotiation appears to be an irregular, one time event. First of all, the Democratic presidential candidates “want to ‘revisit’ existing trade deals and are against an agreement with South Korea, the biggest negotiated by the Bush team” (“Economic focus | Buying off the Oposition”). A number of economists even believe that the Peru vote will be used as a playing card by Congress to prove their independency from a one sided viewpoint.

Secondly, recent surveys indicate that the American public is also becoming more fearful of globalization and free-trade. According to an opinion poll conducted by the Pew Research Centre, “the share of Americans who believe that trade is good for their country has plunged from 78% in 2002 to 59%, the lowest proportion among the 47 countries included in the survey” (“Economic focus | Buying off the Oposition”). What’s interesting is that this bias towards trade skepticism is equally shared by both Democrats and Republicans, according to the article.

Indeed, the idea that U.S. economic policy is becoming more protectionist is hard to ignore. Barriers to both trade and foreign direct investment are increasing in number. For example, “the chances of congressional renewal of President Bush's trade promotion authority, which is set to expire this summer, are grim. The 109th Congress introduced 27 pieces of anti-China trade legislation; the 110th introduced over a dozen in just its first three months. In late March, the Bush administration levied new tariffs on Chinese exports of high-gloss paper -- reversing a 20-year precedent of not accusing nonmarket economies of illegal export subsidies” (Slaughter).

Additionally, one only needs to read the newspaper occasionally to see the number of thwarted attempts by foreign companies proceeding with mergers or acquisitions of U.S. companies. “In 2005, the Chinese energy company CNOOC tried to purchase U.S.-headquartered Unocal. The subsequent political storm was so intense that CNOOC withdrew its bid. A similar controversy erupted in 2006 over the purchase of operations at six U.S. ports by Dubai-based Dubai Ports World, eventually causing the company to sell the assets” (Slaughter).

Matthew Slaughter, a former member of Mr Bush's Council of Economic Advisers and now a professor at Dartmouth College, believes that this shift in U.S. policy reflects an American public that is becoming more protectionist due to “stagnant or falling incomes” (Slaughter). While globalization may or may not be the cause of this stagnation, people think it is. According to Slaughter, “public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.”

These thoughts are alarming because of the enormous benefits that global trade poses to the U.S. economy. Thus, the following question must be answered: How should U.S. think tanks and public intellectuals respond to the idea that global trade benefits Americans less than their trading partners?

Should the notion that lower income is a result of free trade be believed, incomes must rise to prevent further barriers to trade. Mainstream, well respected economists such as Greenspan in his recent book, The Age of Turbulence, suggest the need for greater investment in education and assistance to shift workers from old industries to new industries as a means to combat this drop income.

However, “significant payoffs from educational investment will take decades to be realized, and trade adjustment assistance is too small and too narrowly targeted on specific industries to have much effect” according to Slaughter. I won’t even attempt to conceptualize a solution to this problem. I will merely offer the opinion of someone much more educated than myself. Slaughter believes that the best way to combat the recent rise in protectionism is to redistribute income throughout U.S. society. This may be accomplished in several ways. The tax system may be overhauled as to more heavily levy taxes upon the wealthy and cut taxes for the poor. Slaughter classifies this idea as a “New Deal for globalization,” echoing thoughts of Franklin D. Roosevelt’s series of programs and initiatives that responded to the Great Depression.

Whatever course of action the U.S. embarks upon should undoubtedly be met with strong resistance at the moment. The magnitude of all of these ideas is by no means small and will require a great deal of time to implement. Nonetheless, any solution must strongly explain to the American people the many benefits of a global economy.


Works Cited

Greenspan, Alan. "The Age of Turbulence." New York: Penguin Group, 2007.

Federal Emergency Management Agency Bungling

A recent post in "All the News That's Fit to Post" highlighted the never ending shenanigans of that ominous federal organization, FEMA (Federal Emergency Management Agency). The post highlights the embarassment FEMA recently caused itself due to a conference hosted as a "a pat on the back for aiding evacuees from the recent California wildfires."

According to the blog post, FEMA "gathered a bustling bunch of enterprising “reporter” — a.k.a. FEMA staffers — conference called some presumed gullible journalists — hey, they’d be champing at a bit for a story, right? — and staged a press conference. The specifics were sketchy from the start; the fact that the callers were not actually allowed to ask any questions should have been enough to make any self-respecting reporter question the press conference’s credibility. As anyone with half a brain might have guessed, the “perfect plan” turned out to be the perfect storm for yet another embarrassing setback for the agency."

This conference symbolizes the economic malfunctions of FEMA that became all too apparent since Hurrican Katrina and makes for an interesting read.

North Korea Disarmament

A recent post on Ursus Veritas discusses the ongoing disarmament of nuclear weapons in North Korea and the many difficulties that are fraught in such an effort. The central matter of importance in the articles that Ursus Veritas references is what will happen to the stockpile of weapons and existing nuclear fissile material. In a New York Times article the author references, the following comment is suggested:

It is an important question to ask, since more than ever before, Bush has spent resources and efforts to pursuing this end. He has dissolved and stepped over the 6+ years of conflict between hard-line conservatives who want to oust Kim Jong Il's regime and those who favor negotiation, and vested responsibility and power in Christopher Hill, a member of the State Department who is the point man for North Korea. North Korea has thus far mostly, and encouragingly has complied, with much aid from America, of course. But with all this progress with the disarming of nuclear centers and factories, it is just as important to consider the fate of the current stockpile of nuclear items that has been sitting, unused.

Personally, I believe that North Korea will continue to milk as much aid money from the international community and South Korea as long as possible while feigning good intentions. If history is any window into the future, there is no reason to become giddy over North Korea's stance on nuclear technology quite yet.

Recession Alert

There’s trouble brewing in the economy and it’s my duty to make you aware of it.

In The Economist's article American Jobs | Recession Alert posted on Friday, September 7th, the monthly jobs figures for August were analyzed with grave concern and caused me to more seriously question the possibility of a recession in America's near future.

Specifically, I looked at what The Economist claimed was a very strong correlation between the monthly employment figures, the recent turmoil in the financial markets, and the worsening housing market.

Apparently the monthly jobs figures for August were much worse than anyone expected with the U.S. economy losing 4000 jobs last month, "the first monthly loss of jobs since August 2003." In addition to this recent shortfall in jobs during August, revisions were made to the past several months' jobs figures. The updated figures indicated that the economy has been adding far less jobs per month than is needed to keep the unemployment rate from steadily rising.

While this entire article focuses on the labor market from an economist's point of view, I found it very interesting and important reading to anyone.

Since the shutting down and massive double digit losses in value of two multi billion dollar Bear Stearn's hedge funds this summer (Source: Reuters: Bear Stearns hedge funds near shutting down), I have been on the alert for further macroeconomic economy shaping events and news relating to a recession. If you don't know already, these hedge funds invested in securities backed by subprime mortgage loans. Subprime mortgages are loans made to homeowners with poor credit, unlikely to be paid back.

Wall Street created and packaged these loans into securities that investors such as pension funds, endowments, and individual investors could purchase. Additionally, ratings agencies such as Moody's rated these securities with Triple A, outstanding ratings.

However, these securities have recently posted huge losses because subprime borrowers simply cannot pay their mortgages and homes are foreclosing in the U.S. housing market at extremely high rates since the beginning of this summer.

As a result, investors who have literally poured billions of dollars into these investments have posted huge losses on their accounts.

Of greater importance however is that homeowners who were "sucked" into buying these subprime mortgages by companies such as Countrywide are unable to make the mortgage payments required by their loan contracts. Consequently, many homeowners are being evicted from their homes in the U.S. at rates never before seen.

This entire fiasco has caused the credit market to turn into chaos in the last month as it has "reduced the flow of credit to all borrowers while increasing the cost of borrowing for credit-worthy borrowers." In other words, so much credit was extended to purchasers of subprime mortgages for homes they could not afford, U.S. financial institutions no longer are willing to extend credit to even regular businesses and individuals ("credit-worthy borrowers") for their normal financing needs.

The Wall Street Journal in this article, "Recession 2008?" discusses the repercussions of the housing market troubles I have just discussed and supports the claims I have made.

However, John Makin in his article further points out "the fact remains that house prices continue to fall" and the housing market is still in trouble." While I have already discussed the August jobs figures, the housing market and credit markets in detail as possible indications of a recession down the road, further factors support this argument.

As the Wall Street Journal article by Mr. Makin notes "American recessions are unusual because negative consumption growth is, in most cases, a necessary condition for a recession." However, Mr. Makin predicts in the fourth quarter of 2007 exactly that - a sharp drop in U.S. consumption growth "driven by a credit crunch, a persistent and possibly enlarged drag from residential investment, and slower business fixed investment."

These signs are all troubling and obviously more recessions have been predicted than have actually occurred. However, we should certainly be alert and possibly anticipate an economic slowdown in the U.S near future.

Why should we care about an economic slowdown or recession? Because many of us are young women and men soon to enter the workforce who will be looking for jobs that companies may be much less willing to extend us offers for in addition to a myriad of other political, social and global economic reasons that may be discussed in the future.

Pakistan and Musharraf

In a recent post on Exporting Democracy the United State's strategic interest in Pakistan is interestingly demonstrated. While these interests are mainly about security, they extend into economic ties as well. According to the author of the post, "The U.S has a strategic interest in having a friendly government in Pakistan, as it shares a border with Afghanistan and has become the new front line for the war on terror. Sadly, where strategic interests are involved, promoting democracy and respecting sovereignty take a back seat. The government has played to the population’s anti-U.S sentiments by officially denouncing America’s slaughter of the people of Afghanistan, while secretly launching a military offensive against some of its own citizens in the Taliban sympathetic Northwest Frontier of Pakistan, because of U.S demands. These clashes were the result of mounting U.S pressure on Musharraf to deliver on their investment in diplomatic and monetary support. As a result, thousands of Pakistani citizens living in the tribal belt and at least 2000 Pakistani soldiers, by some unofficial estimates, lost their lives while fighting each other in order to satiate U.S demands."

However, as a result of these policies, the indepedence and sanctity of Pakistani institutions is being undermined. In the future, it will be very interesting to see how this policy develops.