World Economic News
Will Rising Interest Rate Burst the Bubble?
Are interest rates about to shoot up, thereby bursting the worldwide housing and consumer debt bubbles with devastating consequences for the U.S. and world economy? On Nov. 5, the Reserve Bank of Australia surprisingly announced that it has raised its key interest rate by a quarter percentage point, its first rate increase in 17 months. The central bank emphasized that the reason for doing so was to cool down the home-lending boom, which threatens the stability of the Australian economy. Similar to the situation in the U.S. and Britain, mortgage lending in Australia is growing rapidly, recently hitting annual growth rates of more than 20%. On Nov. 6, the Bank of England (BoE) raised its prime rate by a quarter percentage point to 3.75%, again pointing to the need to crack down on the borrowing frenzy. British mortgage borrowing recently hit a historic high of 8.8 billion pounds ($15 billion) in the month of September. The BoE move was the first rate rise by one of the four leading central banks in the world since the year 2000.
On the same day, the Federal Reserve put out first hints that the time of ultra-low interest rates might also come to an end within the next few months in the U.S. In a speech delivered to the Securities Industry Association, Fed chairman Alan Greenspan said that presently he doesn't worry too much about the issue of inflation. However, he added, "no central bank can ever afford to be less than vigilant about the prospects for inflation." Atlanta Fed governor Jack Guynn also noted at a public event in Louisiana that if the economy would really pick up, interest rates obviously "will have to rise."
Apart from the real-estate markets, there are other important areas where price inflation, even according to official data, is zooming up in recent months. For example, take hard commodities: The price of gold hit a seven-year high of $390 per ounce in October, more than $100 above the early 2002 price. Also in October, the price of palladium hit a 23-year high of $732 per ounce, compared to $450 in early 2002. But not only the prices of precious metals are going up sharply. On Nov. 4, the price of copper hit a new five-year peak, while on the same day the price of nickel shot up to a 14-year high. The nickel price has doubled since the beginning of this year.
World Stock Markets Head for 'Crash-Like Collapse'
World stock markets are heading for a "crash-like" collapse, states Swiss economics professor Fredmund Malik of St. Gallen University. In his latest monthly newsletter, Malik warns his clients, that in view of the developments on stock markets in the recent months, he views "a crash-like collapse of stock prices as very likely, actually within the next days or weeks." All indicators are pointing in this direction, he says. Among the investors and the financial media he recognizes an "extreme bullishness," typical for the last days before the bursting of a financial bubble. "The mood is grotesque and in full contradiction to economic reality." Investors and the media are revealing an incredible "blindness in respect to facts." They are "covering up every single [bit of] information that could disturb the good feelings."
In an interview with the German news weekly Spiegel in early September, Malik stated that U.S. government figures for GDP and productivity growth were being "systematically massaged upwards." Thereby the U.S. government contributed to generating the greatest hoax in economic history, that is the speculative bubble around the "new economy." He then noted that the overwhelming majority of economists were unable to reveal the hoax in time, because they are notoriously uncritical of U.S. economic affairs, in particular as many of them even had been financed by the asset bubble.
IEA: World Needs $16 Trillion in Energy Infrastructure Investments
The world needs $16 trillion in energy infrastructure investments until 2030, according to a new study by the International Energy Agency (IEA). The report, "World Energy Investment Outlook," was released Nov. 5 at the IEA's Oil and Money Conference in London. About $6.6 trillion will be needed in the OECD countries, $3.2 trillion for the U.S. and Canada alone. Russia and other "transition" countries account for $1.6 trillion in energy investment needs. And about $8 trillion of energy investments are required in the developing sector, including $2.3 trillion in China alone, another $2.5 trillion in other Asian countries, $1.2 trillion in Africa, and $1 trillion in the Middle East.
A substantial part of the $16 trillion will be needed "simply to maintain the present level of supply. Oil and gas wells are depleting, power stations are becoming obsolete, and transmission and distribution lines need replacing. Much of the new production capacity brought online in the early years of the projection period will itself need to be replaced before 2030. In total, 51% of investment in energy production will be needed simply to replace or maintain existing and future capacity."
Almost $10 trillion of investments will be needed for the power sectorthat is $4.5 trillion for power generation and $5.3 trillion for power transmission and distribution. Total investment in the global oil industry will amount to $3.1 trillion until 2030. The natural gas supply chain will require $3.1 trillion of investments. Another $400 billion are needed for investments in the world coal sector.
The IEA figures are based on rather conservative projections of future demand. The report emphasizes that even in the case all the $16 trillion will be spend on energy infrastructure, there will still be "1.4 billion people without access to electricity in 2030," compared to 1.6 billion today.
EU-China Summit: Strategic Cooperation Treaties Signed
The European Union and the People's Republic of China ended a two-day summit in Beijing Nov. 2, with the signing of three strategic cooperation treaties: on China's participation in the EU Galileo satellite GPS; liberalizing visits from China's scientists and experts to the EU; and on industrial cooperation. At the joint press conference, EU Commission President Romano Prodi stressed that Europe and China "are the two regions that can contribute most to changing the world. We must become the main partners in trade and investments." EU Council of Ministers chairman, Italian Prime Minister Silvio Berlusconi said, "The EU and China can be protagonists in the world for well-being and peace."
On the second day of the summit, there was an Italy-China bilateral summit, in which the two discussed initiatives, such as a Foreign Ministers' committee to study the opportunities for broadening trade relations. Answering journalists' questions, Berlusconi said that the issue of protective tariffs against Chinese imports was not discussed and is not on the EU agenda, adding, "Italian entrepreneurs must work to establish a stronger presence on the Chinese market and to promote their quality products.... We do not envisage restrictive rules or legislation to prevent the sale of such products."
EC President Prodi: Chinese Monetary Policy Is Responsible
In an interview with the Italian daily Corriere della Sera Nov. 1, European Commission president Romano Prodi said asserted that the Chinese are behaving responsibly in their monetary policy. Prodi reported on a dinner discussion he had with Chinese Premier Wen Jibao "on the currency issue. I reminded him that his country now has a global responsibility. Do you know what he answered? Today, he said, we have a large trade surplus, but in the long term we want a balance, we cannot [be], and do not want to be an unbalancing force in the world. We are not interested in that."
Asked whether he sees the danger of a speculative bubble in China, Prodi said: "It is difficult to see a bubble in China. Here there is real agriculture production, real investments, the fundamentals are good, they produce twice as much as the Americans." Then Prodi added that the banking system is "fragile" and "primitive" and should be modernized, for instance, by opening up to "foreign banks."
UN Study Concludes: Rich Nations Are Stealing From the Poorest
The a United Nations-sponsored dialogue at the end of October, concluded that, instead of funds moving from rich to poor countries, they are going in the other direction. The conference reviewed the financing situation of developing countries as a follow-up to the March 2002 International Conference on Financing for Development, also called the "Monterrey Consensus," held in Monterrey, Mexico. G.W. Bush attended the conference.
A year and a half later, the results of Monterrey are alarming. Almost $200 billion was transferred in 2002 from developing countries in net terms, double the amount from a few years ago. The UN Secretary General's report shows that in 1994-97, the developing countries were receiving $30 billion a year on average.
From 1998 to 2000 there was a reversal; $111 billion annually in net terms transferred out of the poor countries. Then the situation worsened, dramatically. In 2001, the net outward transfer was $155 billion, rising to $193 billion in 2002.
Foreign aid had increased to $57 billion in 2002, a drop in the bucket compared to the nearly $200 billion looted.
China's Auto Industry Shifts from Parts to Cars
The number of cars and light trucks produced annually in China has jumped from 1.8 million to 3.8 million over the last three years, and China is on the verge of surpassing Germany, whose 4.8 million annual production is third, behind the U.S. and Japan, the New York Times reported Nov. 2. Most car plants in China, staffed with workers earning as little as 50 cents an hour, are joint ventures between Chinese companies and foreign multinationals. Honda, for example, is making Accords in Guangzhou that are identical to those in manufactured in Ohio, though the plant must import 90% if its steel from Japan, because China's steel plants cannot yet make corrosion-resistant steel to Honda's specifications. U.S. carmakers say they have no choice but to invest in Chinese production, lest they get left behind.
In a similar article on China's boom, the New York Post notes that Warren Buffett's Berkshire Hathaway this year became one of the major shareholders in Chinese oil company PetroChina, which has a market capitalization of $64 billion.
Project Launched by Gulf Countries for Regional Transport Net
According to Arab sources, in Dubai, the Gulf Cooperation Council made a decision in mid-October, at the ministerial level, to go ahead with the project for linking up existing and building new rail networks across the GCC countries. The plan fits into EIR's proposals for linking up the regions' railways with the Eurasian Land-Bridge. More details are expected soon.
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