Irrational Exuberance: Europe’s New Deal Is Worse Than No Deal

"We can claim that a new day has come for Greece, and not only for Greece but also for Europe," said Greek Prime Minister George Papandreou, whose country's troubles touched off the crisis two years ago. "Let's hope the worst is over." Greek’s worst day may be over. But I don’t think it’s true for Europe.

The deal was struck and stocks and oil are on the rise. There will be a reduction of Greece debts by %50. The banks will prop up to withstand major losses. The Financial Stability Fund will be increased from 440 billion to 1 trillion Euros. I actually don’t expect such a bold move. At the end of the day, I was shocked by the move after spending time thinking for a while.

A debt write-down for Greece is good. At the same time, it creates problems for other European countries. The crises should be contained and solved in Greece.  I don’t think it’s in anyone’s interests for problems to be spread across Europe. The write-down is getting everyday country into troubles.

Strike a wrong deal ?

Don’t count the chickens before it hatched! You may think I jump to conclusion too fast. European political system is being paralyzed, perhaps polarized. Their interests sometimes collide. France and Germany have been at loggerheads. Finland demands recently it receives collateral in exchange for its contribution to the bailout packages.

Anyway, they do a relatively job when it comes to bolstering the Fund.  I read two articles- one by Pual Krugman and one by Gordon Brown. They both proposed that the Fund be expanded to Trillions. Greece is the epicenter of all crises in Europe.

 When Greece goes, so does the Europe. It’s a make or break. They keep repeating the words: Austerities and Competitiveness. If I’m not wrong, another 100 billion-euro-worth bailout is on the way, so do the austerity measures. Austerity and strong growth can’t simultaneously exist.

If they don’t change the game, Greece will downright default later or sooner. Still, I think they want it to happen.[1] If not, austerity measures must be lifted. Sooner, the better. Germany has been very stubborn and inflexible. France has been a good compromiser.

Social safety net is Europe is so costly. They have managed it well. When they transfer problems members’ country, Greece default may not be rewarding as they expect. The consequences will shatter Europe’s financial system. I have one suggestion for Europe. If Greece is set to default, all problems should be channeled to Greece, not to diversify. When Greece defaults, all problems will be fixed once and for all. And the Euro will be safe !

I know that they are under international pressure to get the crises solved. But this deal is worse than no deal. It pleases the market but it doesn’t secure Europe’s future, may even be endangered one.  It may be a fallacy. But I have to say that Greece default may be the only solution to Europe’s crises, if they keep doing what they are doing ! 

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[1] Read this : http://sengkongses.blogspot.com/2011/10/terrifying-lie-coming-collapse-of-euro.html

Puzzled By Obama’s Messages

One of the messages read: “Ben Ali escaped, Mubarak is in jail, Qaddafi was killed. Which fate do you prefer, Ali Abdullah Saleh? You can consult with Bashar.” Another was more direct: “Bashar al-Assad, how do you feel today?” That’s a quote from The New York Time.

Three dictators are gone. Has the job been finished? In 2004, Mr. Obama delivered a keynote address opposing war in Iraq. I was impressed by his concluding remark. “We will never go to war again without a plan to win a peace and earn the respect from the world,” says he. 

American’s involvement in Libya is justified. They win not only the war but also the heart of Libyan people. They actually like to put “help Libyan people to liberate Libya” But the job is half-done. One should notice that the uprisings in Libya and in the other places are caused by aspiration to be treated like human.

 Qaddafi passed away. If he were killed after being captured, that would be a war crime. I remember reading an article by The Washington Post. That article quoted an expert who explained the hole in Qaddafi’s temple is unlikely caused by a bullet fired from the distant. The National Transitional Council keeps on insisting he was killed during crossfire. But they are bold enough to conduct autopsy.

If the new Government fails to meet the demand by Libyan people, the country could fall into chaos again. Mr. Obama exports revolutions to Arab World without a comprehensive plan to win the peace there, although he earns the respect from the world.  That’s what Bush junior did in Iraq and he himself used to condemn it.

They said there’s no Marshall Plan 2.0. The situation is very dire in Egypt. Egypt needs a lot of money to get by. Most Egyptian people expect a proper living standard. What worries me the most is that they want it for now. They will take to the street again if they feel betrayed. Then, they don’t listen to anyone. Big problems come!

Firstly, he exports revolutions. Democracy will spread to Arab World and then the American cultures. This helps to open markets for America. But those three countries are still in disarray, especially Egypt.

They say: “Mission Accomplished!  Qaddafi was killed”. I was left puzzled for a while after hearing that sentence. The resolution adopted by United Nations Security Council doesn’t contain that clause. They may over-perform their job.

Who killed Qaddafi is still unclear? It’s worth noting he was once a (close?) friend with the West.  They shake hands with devil. There has been speculation that the West masterminded the killing of Qaddafi in order to conceal the dirty deals they made with him. Again, experts say that the wound in Qaddafi’s temple is unlikely hit by a bullet fired from the distant. By the way, it's premature to talk about oil deals.  

Senator Obama and President Obama act differently. And I was puzzled by his messages. Honestly, I think he has been doing a good job although the situation remains unstable and risky!

                                                                                                                               

A Terrifying Lie : The Coming Collapse of Euro ?

Greece default is not a problem. What’s matter is what would happen after that default? European financial stability facility can cover well the losses resulting from Greece default. Will the market clam down? Will investor’s confidence remain untouched? Those are two important questions need to be addressed.

Why I think Greece is going to default again?  If one looks at bailout packages to Greece, the fund is relatively small. They demand that Greece implement austerity measures. I know that it makes a country more competitive. But those measures happen at the time when Greece is in crisis. Expecting strong economic growth from that climate doesn’t make any sense.

I come to the conclusion that they are buying time. It’s been two years that France and Germany postpone Greece default[1]. Two years time allows other troubled countries to get their houses in order. I think they want to make sure that Greece default won’t be a domino effect.

Why Greece is set to default? Europe is catching American disease. If Greece defaults, Euro will be devalued. What would happen to their export? Most importantly, what would happen to their debt? Greece default is Europe’s version of American political deadlock. It’s a monetization of their debt

It’s wise of Europe to use this style. But I think they may play too hard. It’s good for them that Greece is set default. But if they fail to convince they market, Europe will meltdown. Wall Street, Main Street and the Government are already in big trouble. Emerging markets are slowing as domestic challenges are increasing, United Sates still mires in anemic recovery. If Euro fails this time, there will be a deep depression.

They are playing with fire. If they catch the fire, it will burn not only themself but also the whole world. I don’t think that strong growth will exist in the age of austerities. Some try to challenge me by citing the example of Germany.

Germany is an exception. Labor in the West Germany is amongst the cheapest in Europe, thanks to historical factor. Most of Germany heavy industries are assembled there. Look on Germany's pension system and social benefits and you’ll understand.  More work for less pay!

I believe when Greece will be allowed to default. Perhaps when the US’s Fed floods the economy with money again!

Why each European Government didn’t food the economy with money when the crisis hit?

In a word, social safety net in Europe is better than that of US. The State covers most of the costs. So,  European Government’s debt is higher than that US’s. This may explain why they chose to tighten their belt first. More debt, by injecting more money into the economy, may make the situation worse, affecting the investor's confidence.  Save first and spend later! I hope that they are able to convince the market. Another exit strategy: debt write-down. If not : .... 

Leaders in Europe are saying Greece is not going to default. What a terrible lie!!!

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[1] Technically speaking Greece defaulted on its debt already. 

Who Is The Winner of Global Economic Crisis ? Hint : Not China !

  I was shocked by being told global financial crisis is a golden opportunity for China. For me, it doesn’t make any sense. That crisis just enhances the image of China in global stage only. It doesn’t present any opportunity. On the contrary, it presents threats, not challenges.

The spectacular growth during global recession was largely fueled by debt not by export earnings. Foreign media loves to put: The aftermath of the great meltdown was the rise and rise China and the fall and decline of the West. I don’t agree with that clause. No, it was a breakdown of China’s growth paradigm and the return of Western prosperity.  

China loses Western market to the West when the crisis came. It will take China long time getting back to old market. China high economic growth was the combination of cheap and abundant labor, large capital, state capitalism[1] and diverse, large export markets. The export markets are down. So, that formula is no longer working, at least for a big while.

China is forced to shift its growth paradigm prematurely. As we know, China, unlike the West, is old before it gets rich. In 12^th economic plan, the State emphasizes on a moderate growth economy and a more harmonious society. Chinese consumers are being financially empowered to fit the consumption and innovation based economy.

As a result, the debt will be on the rise in the proportion of GDP. Strictly speaking, the meltdown is not an economic crises but a coup. The West deliberately created that crisis to take advantages of the consequences. And I’m writing a book about it. But I’m not sure when I will finish it.

Chinese government chose to invest in housing market, railway system, and road and so on to offset with export collapse. Take housing market, the supply now exceeds demand.  It’s going to be problematic for both short and long term. Housing market will burst at some point within this decade. From economic point of view, it seems unlikely. But from political viewpoint, it makes sense.

Most people living in Beijing don’t own a proper house. I think the Government wants its people to have one. When the housing prices fall, the average Chinese, thanks to their high saving rates, will buy houses. That’s why I still view that the coming crisis is a soft lending.

The word “spend” will be the mainstay of China’s economy. Getting Chinese to spend more is not that easy. People don’t spend unless they feel secure about their future. Social safety net in China is still in the early stage of development. It needs heavy investment to get the system looks safe.

With declining export market and increasing high demand for money to spend, the result is debt. For sure, monkey is temporally not a problem for China, given the fact it holding larger than 3 trillion dollars in Forex reserves.   In the coming years, it does.

The Fed easy money makes the Dollar becomes cheaper and cheaper. The US debt China is losing values. The same is also for true for Euro.  As if there wasn’t enough, the democrat and republican parties fought one another to debase the dollar. And QE3 is also coming. China is going to lose a lot of money. It’s so wrong to think the West will open their markets after they recovery from the crises.[2]

 America now needs investors more than ever. Investors are moving back to America. Giant companies, like Facebook, Google, generate a lot of wealth, but not a lot of jobs. Facebook employs a few thousand people only. That’s the consequence of technology revolution.

This article is not to defame China. I’m a Chinese Cambodian too. It’s, rather, a wakeup call. Chinese leaders are very well aware of this. But I don’t think most Chinese do. Cambodia has a huge stake in the rise and fall of China. Hopefully, our policymakers keep a close eye on what’s happing in China. China is not the winner but a country that used to capitalize from the crisis. 

 I’m Not saying that China is set to fail. It remains to be seen. The man who laughs last laughs best!!!

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[1] Sate capitalism means free market with Chinese characteristics.

[2] Read previous articles if you are not sure. 

Catching Up or Falling Behind: Cambodian Education in The Age of Globalization

I write this article to pinpoint the challenges we are to face in the 21^st century. I help to diagnose the problems of could think of.  And I left the solution to our policymakers. I’m afraid that we are not ready for the coming job war.

What worries me is not about getting the job for our people but about getting a decent-paying job. Remember that we compete not only with our neighbors but also the rest of the world. We have to compete with two billion people in China and India. Given the fact US exports revolutions and, of course, brings democracy to Arab World, we have to compete with another one billion. Africa is also emerging, although with a slow pace.

We share great similarities. Cheap labor, export-driven economy, cheap credits are the similarities we all share.  There’s too much labor supply as there’s limited demand.  It makes sense to say that we are competing to survive not to thrive.

I’m frustrated when it comes to Cambodian education in the age of globalization. The system stills very much revolve around rote learning. I do agree things are improving fast but not fast enough to catch up with the rest. In coming decades, we have to “compete with everyone from everywhere for everything”, thanks to globalization.

If we play globalization game and lose, that would be worse than a failure. Look at what’s happing in other developing countries and prepare ourselves for those challenges.  To reform our education system to get ahead of the tide in a short time is something that is of great difficulties.

Our students are still very much low-connected and the command of English is still bad, making our forthcoming workers uncompetitive in fiercer world. That’s unfair for them. But there has been a marked stride in term of access to technology. English command is still overall poor. It needs to be developed faster than current pace.

We should not take Internet access for granted. If we could not reform the education fast enough, we should reform the ways they learn. Make them more and more connected in an increasingly connected world. Internet is the master of the universe and it’s, somehow, still a stranger to some of our students.

Again, change the ways Cambodian students learn, if we are unable to keep ourselves ahead of the trend. Make the Internet more and more accessible at a lower price. France language was one of our strengths. But now it becomes our weaknesses. If you can get both or more, it’s good for you. There is an English proverb that goes: Jack of all trades is the master of none.

We should arrange a national discussion under a topic “How can we get the most of our limited resources?” In this century, we compete with the world. I think the challenges we face are really huge. Unpredicted challenges need unprecedented solutions.

If we fail this time, it will take decades to get back on out feet.  We have more than four billion competitors: More than one billion in Africa, more than one billion in Middle East and Arab, more than one billion in India and the rest is in China. We are catching up but, at the same time, we are falling behind too. I’m frustrated with our education system. On the contrary, I’m an optimist. So, I’m a frustrated optimist. Share your solution for a better Cambodia. Thanks for your service…

A Silence Coup Against World Economy

 It’s not an economic crisis but a silent coup against world economy. That’s the title of my forthcoming book. I’m not free enough to finish it. I decided to writing articles giving an overview on that coup. It will be written in series, just like Harry Potter of J.K Rowling or Women’s Murder Club of James Patterson. 

This article is just a note. It was a successful coup to topple global economy. To some extent, the Great Recession was both structural and cyclical. I’m still doing research on that issue. So, my writing may be somewhat misleading. But I created this blog for learning and sharing. I’m not afraid of making mistakes.

People are saying Asia is winning the economic war. I’m skeptical about that. What did we get from global economic crisis?  I encourage you to post you comment.  I will put special focus on emerging markets and developed countries. For me, the great crisis of 2008 is a deliberated plot created to take advantage from the collapse of global financial system.

An economic crisis is just like cancer. It takes about 30 to 40 years to explode. I found out many factors make us to this mess. 1. Income inequality in America. 2 lack of proper regulations   3. The introduction of Financial Service Modernization Act approved during Clinton’s second term.  4. Tax Break during Bush’s terms 5. The greed of investors 6. Willingness of American Government.

The income inequality makes Middle class Americans indebted. Then the subprime came. Average Americans were in rush to buy the houses in the hope of making profit.  The housing prices were up mainly because of speculation. Banks were also making too generous loan. The bubble was becoming bigger and bigger. It burst after reaching the peak.

The confidence in financial market was rattled. Investors didn’t have confidence on the economy and the economic crisis erupted. The greed and corruption in global financial system turned American crisis to World crisis.

I’m going to write about Cause, Containment and Cure. I will start with income inequality.  I divided the countries affected by the crisis into three categories. 1. The countries that win: United Sates, Germany, France… 2. The countries that capitalized from the crisis: China, South Korea, Taiwan… 3. The countries that failed: third world countries in Africa, Asia….

It needs a lot of evidence to support my claim. There will be a lot of references. How on earth did they create it? Why America is the biggest winner, not China? What is the future of global economy?  The next article may answer your doubt.