Can a Green Party possibly exist in Singapore?

Can a Green Party possibly exist in Singapore?

SINGAPORE - When comparing Singapore’s political scene to the likes of America, United Kingdom or Australia, there is something the latter has which the former lacks - a Green Party (s). The next question to ask is - can such a party really exist in Singapore’s context?

Perhaps, the answer lies in the nature of Singapore’s socio-political climate, i.e. if the soil of Singapore can nurture the seeds of a Green. A Green Party as its name suggests has its agenda revolving around environmental issues. However, it would be a mistake to think that a Green Party is synonymous with environmentalism. The pillars of a Green Party encompasses championing of community participation within the political process in addition to a firm adherence to pacifism and equality among all.

In as far as environmentalism is concerned, there is definitely avenue for a hypothetical Green Party to operate. The haze from forest fires in Indonesia has adversely affected air quality here in Singapore, leading to declining respiratory health among those who are susceptible. Even though the situation is physically out of Singapore’s reach, a Green Party worth its salt would have pushed for greater bilateral cooperation with our Indonesian partners to tackle the forest fire issue. This can range from transfer of new agricultural technology to farmers to the establishment of elaborate information sharing networks to monitor possible sites where fires can break out. If the need arises, a Green Party would be the first to authorize sending logistical aid or even fire fighting teams to help put out the fires.

And who will ever forget Chek Jawa? The Singapore government had originally planned for land reclamation works, but that would mean destroying the rich biodiversity in the area. Any Green Party worth its salt would be at the forefront of efforts in lobbying against the decision to proceed with the reclamation. It turned out that Singaporeans came out in full force to campaign for the preservation of Chek Jawa. They won, and their victory was made all the more sweeter with the government’s support in conservation of the area. Such an achievement would have made many a Green Party cadre proud.

How about the participation of a community in the decision-making process that concerns the latter? Unfortunately, such grassroots democracy is non-existent in Singapore. Local communities have no say over matters concerning them. Take for instance the GRCs that have experienced walkovers for many years. Some of the local communities are badly in need of upgrading. Unfortunately, upgrading in Singapore’s context has a political baggage, and it is not uncommon for communities badly in need of upgrading ending up among the last few in the queue. And if upgrading is done, does the community get to decide on the type of improvement that their area needs? A firm no.

Thus, is there avenue for a Green Party in such circumstances where the local community do not play a part in decisions that concern them? An affirmative yes. In fact, the party can establish active grassroots organizations that function as possible channels which the local communities can turn to. The Party will then lobby on the communities’ behalf and highlight their needs to the government.

Does a Green Party with its pacifist stand have any place in Singapore’s politics? A strong yes. Singapore is involved in some sort of mini arms race with her surrounding neighbors with each side acquiring increasingly sophisticated weaponry. Its defense budget was projected to increase slightly to S$11.45 billion from S$10.8 billion in 2008. Thus, a hypothetical Green Party would advocate slashing the defense budget and spending it on welfare instead. Any pacifist would have shown opposition to a policy that adds further fuel to an arms race.

In addition, the equality and fairness for everyone that a Green Party advocates is after all an important part of our national pledge:”based on justice and equality, so as to achieve happiness, prosperity and progress for our nation.” A Green Party’s vision of a society is one in which justice is served in all aspects, and that individuals and groups are subjected to fair and impartial treatment.

Thus, Singapore definitely has place for a Green Party. After all, it is always good to have some greenery within a concrete jungle, right?

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The worst recession but the fastest recovery?

The worst recession but the fastest recovery?

It’s been barely a month since our ministers urged us to brace through this recession. But in the past 2 weeks, there are so much optimism everywhere that the recession is coming to an end within this year. But ain’t it incredible that leaders throughout the world has mentioned time and time again this is the worst depression ever since world war 2.

For the past 2 weeks, US market has been on the rally. Not to mentioned that AIG and Citibank has gained 300% profit in a matter of two weeks. Market rally has been based on the point that Citi’s CEO mentioned that the company is making profit for Jan and Feb in a MEMO. Market rally just base on a MEMO? Ain’t it just incredible? Including the fiasco of Federal Government going to the point of taxing any bonuses paid out by AIG. Executives should know it’s not going to work well with US citizens, afterall, it’s taxpayer money.

Obama has also taken a tough stance towards bonuses payout using bailout money as well as making his point clear that American will ride out of this recession under his leadership. There has also been plan to buy out the toxic asset by Federal. So far, Geithner has been trying to create regulatory reform to the financial sector. I’ll reserve my comments on whether it will work. The housing sector is showing good sign that it is recovering. It is good news for the subprime crisis is root for this recession.

But no matter what, it is far too early to determine if the recession is truly over. Not until the end of the year. But it’s not a bad time to invest with everything on sale right now. Dollar averaging is a good strategy now. Buying Index fund is also a good idea due to low risk and low transaction cost.

Beware of buying on sentiment as the current rally is due to speculation and financial institute has been shorting stocks for this week. It has ended quite badly. So now, I still encourage the buy and hold strategy as the market is already near its bottom and market timing doesn’t really ensures that you can buy at the cheapest price and due to transaction cost.

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EVA-based bonus system

Does EVA-based bonus system have anything to do with CDC’s 8-month bonus & CapitaLand CEO’s $20m bonus?‏

Three recent events prompted me to seek your confirmation/clarification if there is any link to the bonus system at GLCs/other government-related institutions like PAP-controlled Town Councils/CDCs, etc, and the recently revealed bonuses of the 2 town council/CDC staff and CapitaLand’s CEO:

1. Some PAP-led Town Councils’ revelation of million dollar investment losses in Lehman Minibond and other structured products;

2. Two PAP-led Town Council/CDC staff’s (reportedly senior management?) bonus of some eight months;

3. CapitaLand CEO’s $20 million bonus (refer Straits Times today - attached below)

When I was previously working in a US MNC, the company had a bonus system that was structured quite like the EVA-based system popularly adopted by many US corporations since the 90s. Practices may vary and the exact formula used may be complex but in a nutshell, this system sets aside a pool of money to be distributed as bonus to its staff (senior management) after accounting for “opportunity cost” of capital deployment; the more senior the manager, the bigger the entitlement to the bonus pool - ie weighted entitlement.

Let me illustrate by way of an example:-

If the company makes good profits and after deducting expenses (like salaries etc), has some $1 million available for this EVA bonus pool, this bonus pool will be distributed to those entitled to share this pool (mainly senior management although some companies may include junior management but in any case, their entitlement will be weighted).

Under what circumstances will the staff enjoy good EVA bonuses? These may include:

1. Good profits during good times;

2. EVA benchmark (or opportunity cost) is low - eg if EVA is pegged to banks’ FD or inflation rates during low interest rate/inflation environment, like in recent years in Singapore;

3. Cost reduction exercise like salary cuts, etc (in fact, salary cuts may end up benefiting senior management (the “Generals” in military lingo) at the expense of the rank-and-file (the “foot soldiers”) as these foot soldiers in most cases are not entitled to the EVA bonus pool, assuming the company is profitable with money set aside for the EVA pool).

I am not sure if any (or all) of the GLCs/CDCs/PA etc adopt the EVA-based bonus system, but if they did, could it be the reason why CapitaLand CEO’s bonus amounted to some $20 million and the 2 CDC staff (if confirmed they are senior management) received 8 months of bonus when the rest of the “foot soldiers” suffer salary cuts? (I do note however such an EVA-based bonus system was (still is?) adopted at SFI (a GLC) - link MOM)

Also, if these GLCs etc adopt EVA-based bonus system, then can we safely assume top management (eg CEOs of Temasek, GIC, etc) would have received superb bonuses during the bull run years (and even during the current crisis years as long as there is bonus for the EVA pool for distribution)? But I guess Singaporeans will never get to know how much such bonuses were as these are presumably secrets not for public consumption.

(Note: I note the justification for the PAP town councils investing in “risky” Lehman Minibonds was in order to “beat inflation”, but are there other reasons why these town councils (and other GLCs, etc if any) resort to taking such high risks (but with corresponding high returns)? Is there any link of this need to outperform to the EVA-based system?)

Regards,

Jeffrey Ho

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Why LKY should play SimCity

Baby Gloom Haunts Lee

Why is it so difficult to just get down to the whole business of making babies? It should be the most natural thing in the world. What’s the fuss all about? Why does it have to be something like the Da Vinci code?

My pet theory is; it may have something to do with the sworn enemies of the brotherhood – yes, those erudite spinsters who reside in that self styled monastery known as SPH (the Sisters of Perpetual Hesitation); who often write toe curling accounts on the seven habits of highly effective wife beaters – to why I rather sleep with my dog than a man - in their cloistered enclave when their mother superior Sumiko exclaims: “I’ve missed the boat.” Her underlings cheer on, “Well done, our aim must be improving.”

Leaving that all aside our baby blues remains a pithy summary of the sign of our times – it’s serious when you consider even Sengkang Sally these days seems to be hanging up her eggs.

In the early 80’s when the trend of forestalling the stork first surfaced it affected mainly the ranks of professional women - that was alright - besides all of them were batty and their abstinence probably saved most men from perpetual bitching.

But of late the trend of forestalling the stork seems to have reached pandemic levels and it’s even scissoring right through the length and breadth of our society! So out comes the same unsavory characters making a bee line in rogue’s gallery: high cost of living, not enough time, an uncertain future and the impossible demands of juggling jobs and kids etc.

Are they the only suspects? Could there be another reason why our birth rates are so low?

One clue that may explain why the baby figures are so shambolic may be found in the computer game called SimCity - I happen to love the game.

For one it’s a great way to take a holiday from my inferiority complex; as SimCity is really like playing god (though I don’t think he eats pot noodle or has to live in a room where clothes go to die) – now the thing that I learnt most about SimCity is:

Build a lousy system and you are likely to get lousy results; there’s no mystery there, it’s cut and dried; where the cost and penalty calculation become screwy is when you build a perfect system that’s so good that it even has reserves to gather momentum and when you pull on the brakes nothing happens!

It’s a bit like the Titanic 30 seconds before it struck the iceberg - instead of you playing the game; the game plays you.

That dystopian nightmarish landscape bears out only too clearly in the game SimCity - even the most benign and innocuous actions can be amplified and have far reaching implications – build a multi storey car park and the next thing you know you’ve created the mother of all traffic jams and that leads to probably an eight lane highway and deppreciation of property - next thing you know your neighborhood has turned into down town Baghdad; if you really want to understand why our baby birth rates is so low –here it is! - the answer believe it or not can be found in a computer game and just in case you think - I am kidding.

I am not, I worked it all out mathematically one evening on a napkin in McDonalds.

The whole idea of playing the extinction game isn’t really so different from one those environmental horror stories; we so often hear about; When someone thought it would just be a dainty idea to bring a pot of flowers from the old country to brighten up the porch and dress up their bonnet for Sunday church.

But what happens when that species of alien flower finds its way into the local ecology and proliferates only to overreach its territory very much like a super invader to wipe up the rest?

The analogy isn’t so different from what really accounts for our baby blues.

The historical accounts are sketchy; but the story goes something like this; during the late 70’s a great social engineering experiment was launched; the ‘2 is enough and 3 is company’ population control program.

It made perfect sense then to mitigate the high birth rates and leveraging on the apparatus of assimilation to broadcast the message it worked admirably, the problem was everyone from the policymakers to the social scientist who conceived this idea became so fixated on the drive train and breaking the land speed record; none of them bothered with the emergency brakes. In short, they forgot about the reverse gear - fast forward today; when we talk about our lamentable birth rates, it’s nothing more than a social Chernobyl experiment gone awry.

Yes, some fucked up.

The lessons here are sobering – never ever fuck around with something you don’t completely understand – that’s the problem when government decides to play a round of Iam-God-almighty.

My point is simply this; it may have made pragmatic sense once upon a time to muck around with the lives of people, but even with the benefit of the best of intentions; the cost of doing so may simply be too horrendously high to contemplate in the long term; fact remains where the equation applies to people; the whole calculation may not even hold true as what we are dealing with here isn’t nuts and bolts – it’s not really a quantitative method as it remains a qualitative process; its more an art than a science; because you dealing with people and people don’t always behave rationally.

Yes, small things can have big consequences. They can even come back a bite you like a multi headed hydra. Worst of all, some of the mistakes we make can’t be reversed - once they go into the mind; they just stay there.

It would be good; if government just kept that in the back of their minds when they next decide to muck around with the internet.

Don’t say, I didn’t tell you; it’s doesn’t pay to play God.

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Gerontocracy in disguise

Say No to Senior Minister/Minister Mentor - Gerontocracy in disguise

First, there was one. Then, there were two. Now, we have three. Sooner or later, the number of senior ministers and minister mentors will catch up with the junior ministers, judging by the increasing lifespan of Singaporeans.

In companies, some CEOs retire to be Chairman of the Board. Some still collect salaries/bonus/perks as they do during their CEO days. The scrupulous ones will only take director’s fees.

Well, as they often have substantial stakes in their companies, we can’t fault them too much.In fact, most do contribute. If they misuse their powers, at most the company goes bankrupt. But, a country is slightly different.

Former prime ministers/deputy prime ministers do not own the country. The country belongs to the people. By promoting themselves to SM/MM and collecting salaries/bonus/perks as they do during PM/DPM days, they are practising gerontocracy in disguise.

If they fail to contribute or even worse, if they abuse their powers, the country will be in dire straits. In old communist China/USSR, we often see gerontocracy being practised and that has wrecked havoc on their societies. But they are huge countries, thus they have the strength to recuperate from misery. However, Singapore can’t afford to experiment with gerontocracy.

In ancient China, we often saw past emperor/empress or current prime minister acting as regent when the new emperor was young and inexperienced.

Those who eventually relinquished their regent duties when the new emperor was old enough were deemed wise, but unfortunately those who didn’t, history was not kind to them. Singapore government should do well to heed this historical fact.

In well-managed companies, people who resign/retire or promoted are asked to name their successors, else they shouldn’t resign/retire or be promoted.

Now, Singapore government said it is a world-class government, but from the latest addition of Senior minister Jayakumar, it is obvious they are not as good as they claimed to be. Reasons given for promoting Jayakumar are that he has important matters to oversee like national security, climate change, law and foreign policy.

Obviously, he hasn’t been training his understudy to take over from him. For national security, we have Wong Kan Seng, ISD and Mindef, are they for show? For climate change, we have Yacoob Ibrahim and NEA, are they sleeping?

For law, we have Shanmugam (touted to be the best lawyer in singapore), Chief Justice, Tommy Koh, etc, aren’t they experts? For foreign policy, we have George Yeo (who definitely speaks more eloquently than Jayakumar) and MFA and SM/MM,PM, aren’t they enough?

If Jayakumar isn’t imparting his skills to others, should we promote him? Say No to SM/MM as if their experience and connections are really important to Singapore, they can leave the cabinet and set up private consultancies to work for Singapore government at market price. Then, we will know how much they are truly worth. But, they will argue that they care for the country so much and that they need the cabinet titles to meet foreign dignitaries. One is even willing to wake up from the grave to put things right.

Well then, i have two suggestions. They can run for the president post, unless they think the president has no powers. Else, they can form a party to challenge PAP and still serve the country (that’s the advice LKY gave to his political opponents), unless they believe the electoral law are biased against opposition.

They may also argue that setting up private consultancies will lead to lobbying activities like those in US. This will not happen unloess they don’t trust Singapore’s laws.

If the ex-PM /DPMs are capable people, they should have no problem finding lucrative jobs outside. They should take a leaf from former DPM, Goh Keng Swee who was a former consultant to China after retiring from office. If they are incapable, which i doubt of, then that shows that high salaries/bonus/perks for their jobs is not for retaining talent as they stated.

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Baby gloom haunts Lee

Saturday March 28, 2009
Baby gloom haunts Lee
INSIGHT: DOWN SOUTH WITH SEAH CHIANG NEE

True-blue citizens may go the way of the Mohicans with the city-state’s falling marriage and birth rates.

THE rising number of reluctant brides, particularly among the highly educated, has again been highlighted by Singapore’s founding leader Lee Kuan Yew.

In a recent dialogue with undergraduates, Minister Mentor Lee pointed to his own daughter as an example when he talked about the long-term impact of falling marriage and procreation rates.

His concern about Singapore’s population slide had been around for some 25 years, seeing it a threat to its long-term survival.

A newspaper headline just asked: “Will we be the last of the Mohicans (an American Red Indian tribe that became extinct)?”

In other words, the low fertility will lead to the extinction of the present 3.25 million true-blue Singaporeans.

The white-haired Lee says an increasing number of the better-educated women are choosing to remain single as a lifestyle choice, and happy with it.

Some 33% of men and women are single, according to Lee. And to prevent an eventual collapse, Singapore has to import foreigners.

Lee aimed his marriage-and-population message at the very people – university students – he wanted to reach.

When he first talked about the subject, it was a generation ago. The people then would have included some parents of the current audience.

At the time, the reaction was a surprise since the birth rates were not yet at crisis point.

Lee is 86 today. This year he enters a historic 50th year of state leadership to become the world’s longest serving leader.

He showed the students an uncharacteristic glimpse of his softer, fatherly figure, a divergence from his past combatant self. This time, he talked of his unmarried daughter to make a point.

She is Dr Lee Wei Ling, the bright 54-year-old director of the National institute of Neurological Sciences, who once lashed out at the “elitist attitude of some in our upper socio-economic class.”

Writing that she was neither anti-establishment nor “a government mouthpiece,” Dr Lee added: “I am capable of independent thought.”

Something dad probably agrees with. In his fatherly eyes, Dr Lee – however mature or brilliant – is still a child who needs looking after.

After saying that one-third of men and women in Singapore were single “and quite comfortable with their lives”, the Minister Mentor said: “My daughter is one of them. What can I do?”

Then in an unusually emotional mood, Lee told the young audience: “When she was in her early 30s, I told her, never mind all this.

“My wife and I used to tell her, what you want is a “Mrs” (to her name). She didn’t think it was funny. Now, she is 50-plus.

“I’m getting old. I’ve got a pacemaker. We’ve got this big house, everything is looked after now, but what happens when we are no longer there?

“Who’s going to run this place? Who’s going to make sure that the maids are doing the right thing and so on and so forth? That’s the price she (Dr Lee) will have to pay.

“She says, I’ll look after myself, but she has not been looking after herself all these years.

“She went abroad for her studies. And her cooking was just to take the salmon and put it in the microwave and heat it up. You can do it and then go to the canteen, but when you do that day after day ...

“It’s a choice she has made and a choice that 35% of our women are making.”

However, in the 21st Century, women are the key to population control, Lee said, but “you have to couple an educated woman with equal job opportunities”.

The ageing Lee is still not beyond putting down his opponents either in the courts or using the law and police. On this occasion he talked of his own mortality.

At any rate, he remains very active in the running of the country.

He no longer sounded like the pugnacious 35-year-old lawyer who became Singapore’s first prime minister in 1959 when it was a self-governing colony.

In talking about lifestyle choice, Lee may have left out other factors that is contributing to fewer Singaporeans marrying and producing babies.

One is the highly competitive life in a tiny Singapore that has few resources. From school to work to business, it is one test after another for the people.

Another is the high cost of living. The Economist Intelligence survey named Singapore the 10th most expensive country in the world, and the present crisis could make things tougher.

Last year inflation rose by 6.5%, the highest level in 28 years, with the poor being the hardest hit – not a formula for more babies.

During the past decade wages of the broad middle class stagnated, while that of the lower-income group actually declined.

Some young critics blame it on policies that Lee had instituted all these years, particularly giving priority to economic growth over individual needs.

This is the second time Lee has referred to his offsprings being affected by dramatic social changes.

Apart from his daughter, Lee had earlier said that Li Hongyi, his grandson (the son of Prime Minister Lee Hsien Loong) had succumbed to the emigration trend. He has said he may remain in the United States after graduation.

A Singaporean wrote: “At least Lee now realises that no matter how tight he controls Singapore, there are things that are beyond him – like marriage, emigration and having children.”

His problem is amplified by a young lady, who wrote: “We don’t need men to take care of our needs. We can afford our every material whim and fancy.”

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Teo Chee Hean: Next Prime Minister?

Teo Chee Hean: Next Prime Minister?
At last Singapore has a visible, credible figure likely to succeed PM Lee Hsien Loong. By Seah Chiang Nee
Mar 28, 2008

For five years since Mr. Lee Hsien Loong became Prime Minister (in 2004), Singaporeans did not have any idea who would take over when he left, or if something were to happen to him.

Now, at last they have a clear idea.

The defence minister and former naval chief, Teo Chee Hean, who at 54, is three years younger than PM Lee, has been promoted as Deputy Prime Minister, and although he has not been officially named as the successor, the official statement made it clear he will fill the PM's place whenever he is away.

In Singapore's system, in which voters have no say on who the becomes the chief of state, this is almost as good as being crowned heir apparent.

Seniority: Wong Kan Seng

Not only in tenure in the post, byt also by party hierarchy, The other Dep PM (and Home Affairs Minister) Wong Kan Seng has seniority over Teo Chee Hean.

Only four months ago, in December last year, Mr. Wong who is related to the influential Lee family, was re-elected the party's 1st Asst Sec-General, second highest position next to Hsien Loong (who is Secretary-General.

Next in the pecking order is Teo Chee Hean as 2nd Asst Sec-Gen.

However, it is apparent that by being chosen as Acting PM during Lee's absence, Teo has the upperhand as takeover candidate.

Besides Mr. Wong, aged 62, is older than the PM himself. He is generally perceived as lacking Teo's political or leadership standing among Singaporeans, especially after the escape of alleged terrorist leader, Mas Selamat Kastari, from high security centre.

Not many people believe he is prime minister material.

It is unlikely that the ruling People's Action Party could be voted out of power in the next general election scheduled to be held in 2011, despite rising disastisfaction (among some quarters even deep anger) with its performance.

So come April 1, Singapore will have a prime minister-in-the-making in the cabinet, and this is what makes the announcement of a caibinet reshuffle last week a very special one.

In the nature of the PAP's way of selecting leaders (away from the public participation), most cabinet reshuffles had largely failed to attract much public interest.

A general public reaction used to go like this: Whatever new blood they bring in is of little interest to us; only to the PAP.

A good choice

So far reaction to Mr. Teo's front-runner promotion has been good, with many describing it is a good choice, especially after he said he would work hard to support the PM in closing ranks with the people.

A few commented that Teo is more humble than some of the arrogant scholar-type elites in the government.

I am glad he didn't say his first priority is to help imrpove the national assets, which, of course, has dark implications for Singaporeans.

If it materialises, he could be the first Prime Minister after the Lee Kuan Yew era comes to an end.

Other observations are as follows: -

(1) If Mr Teo Chee Hean really takes over as successor, it could mean Mr. Lee Hsien Loong (who once suffered from cancer) may step down earlier than the year 2021 he had once said would mark his exit. In 2021, Teo will be 67-years-old, a bit too old. By comparison, Hsien Loong was only 52 when he became Prime Minister.

(2) Keeping succession a bit unclear to the public is probably due to a desire to prevent party factionalism, even in the slightest form.
Secondly, it was probably Mr. Lee Kuan Yew's wish to see Hsien Loong at the helm for a sufficiently long time.

(3) Last April, Minister Mentor Lee said that because of the long period needed to groom a future leader (Hsien Loong said he would remain PM until 2021), those in the present cabinet would not make the grade as successor.
Lee Senior also said that the next PM could be a party outsider, who knows nothing about politics or statecraft, someone who is now in his 30s or early 40s now.

(4) If I am not reading too much on it, it could mean that Mr. Lee Kuan Yew's ideas for a younger ousider was turned down by his younger cabinet ministers.
They could not have been too pleased at being told that none of them is capable of taking over and some 'newbie' from ouside has to come in to do the job.

(5) This year Mr. Lee Kuan Yew makes history as the longest surviving leader (elected in general elections) in the world. The year 2009 marks his 50th year of existence as a political leader, having outlasted every any where in the world. As of now, his era lives on.

(6) The next question is when will Mr. Lee himself leave the cabinet? Will he stand for Parliament re-election in 2011 when he'll be 87. Ask 10 Singaporeans and almost to a man, they would probably reply: "Never" or "He'll probably die in office."
I do not think it is true. It could happen through a surprised decision. In politics, nothing is carved in stone.

(7) The new cabinet takes office on April 1 - two days before Malaysia has a new Prime Minister and a newly elected UMNO team that will likely - for better or worse - have an impact in Singapore. Is it merely accidental timing - or something else?

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Goldplay

Mar 28, 2009

Goldplay
By Chan Akya

"News reports confirm that a two-seater Cessna aircraft crashed into the local cemetery near Washington this morning. Police on the scene have uncovered 100 bodies so far and expect to find many more."

Yes, that certainly is an awful joke; but it well typifies the unintended consequences of actions undertaken by the world's central banks from the past few days. In no particular order, we had the following major developments this week:
1. Egged on by the act of the Federal Reserve buying up US Treasury bonds, the Treasury unveiled its very popular but completely brain-dead proposal for a public-private initiative aimed at removing loans and securities sitting on the moribund balance sheets of US banks.
2. The president of the European Central Bank (ECB), Jean Claude Trichet, rejected demands for an increase in stimulus spending in Europe, a point of contention with the Barack Obama administration.
3. Bank of England governor Mervyn King warned that inflation could worsen in the United Kingdom and require a sharp increase in interest rates thereafter.
4. The governor of the People's Bank of China (PBoC), Zhou Xiaochuan, called for a replacement of the US dollar as the global reserve currency.

At first glance, each of those statements is wonderfully consistent with the requirements of the immediate economy that they are responsible for as shown below:
a. The US banking system is has shown to be refusing loans to businesses given the sharp economic downturn and the impact of further credit losses on the balance sheet that help erode their capital base and thereby make new loans more problematic. By showing a program that ostensibly removes problem loans from bank balance sheets at prices that are "agreed" to by private sector participants, the US government can help the banks clear the logjam and perhaps initiate new lending. The Fed demonstrated its willingness to in essence print currency to allow for an inflation in asset prices thus entailed by the US Treasury moves.
b. In Europe, countries have been fiscally irresponsible during the boom period and are thus constrained in their ability to expand the purse strings into a downturn. Further, the workings of the bond market dictate a shift of pain from the weakest to the strongest economy; in turn rendering the currency (Euro) less credible by the passing day.
c. Weeks after unveiling a quantitative easing strategy (see Buyer Beware, Asia Times Online, March 14, 2009), a jump in inflation above the "target" rate of 3% in the UK sent the Bank of England to reverse course entirely and advise against further fiscal measures due to the likelihood of further currency depreciation and possible national bankruptcy. This is the exact set of worries that I shared with readers in the above article; however the timing of governor King's statement was more focused, coming as it did very close to the unveiling of a national budget in the UK this week.
d. As the holder of the world's largest reserves, much of it denominated in US dollars, it was perhaps all too well for the head of the PBoC to demand changes in the savings regime, being what would be required to reduce the volatility of returns as well as on current income. The statement comes a few days after a warning from Chinese Premier Wen Jiabao about the need for the United States to maintain its creditworthiness if for nothing else, for the sake of China's own "investment" in the country.

Seen from those perspectives, all the grandees in governments around the world have been remarkably consistent in respect of their own situation. That said, it is fair to say that ALL of them have missed the bigger picture; and in so doing have multiplied the damaging effects of their own action.

Chinese water torture
My colleague in Asia Times Online, Julian Delasantellis, has performed a masterful deconstruction of the Fed/US Treasury plans to inject hundreds of billions of dollars into the banking system as a means to artificially inflate asset prices (see for example US Fed's move is the bigger problem, Asia Times Online, March 21, 2009). I note "artificially" because there is no organic, growth or demand-related cause for asset prices to rise in the United States. Instead, this is a completely open declaration of intent to inflate prices, on the two legs of the Fed buying unlimited US Treasury bonds, which uses the funds to buy assets from banks.

Remarkably soon after Wen's statement on the US dollar, this response from the Federal Reserve and the US Treasury can be seen as nothing other than a snub to China. Readers will remember that US Secretary of State Hillary Clinton took the unprecedented step of accommodating the Chinese point of view on several issues, ranging from human rights to Tibet, with a view to securing explicit support from the Chinese government for a continued expansion of the US government balance sheet.

That trip was, however, before the fateful export figures for the month of February were reviewed by the Chinese government, these showed a horrifying 25% decline over the previous year. In effect, the Chinese government has realized that the game was up - that is, even allowing for a willingness to buy more US government bonds, they no longer had a continuing ability to do so given the sharp decline in inflows going forward.

Another element of inflows for China, namely investments, also turned negative in January this year, with changes in foreign exchange reserves relative to trade and other flows pointing to an "unexplained" outflow of around $40 billion by some measures (using other measures that incorporate commercial banks' deposits with the central bank would actually increase the estimated outflows to $75 billion at the beginning of the year). Much of these outflows are from the very businesses that the Chinese government is trying to help with its policy of depreciating the yuan: exporters who are simply not bringing back proceeds or in many cases simply sending money straight back out of China to benefit from further depreciation of the yuan.

Given this context, it is clear that the Chinese government has decided to embark on a series of steps meant to somehow justify their reduced holdings of US dollar assets, a strategy referred to as "making a virtue out of a necessity".

For the rest of the world, these sudden lectures from the Chinese government about fiscal prudence and reserve currencies should ring as hollow as their points about human rights abuses in Western countries. In other words, ignore the shrill talk and focus instead on the real reasons.

This tango between a US government bent on printing money and a Chinese government that can no longer buy any of its favorite toys leads obviously to some fireworks but in effect there is no real drama here. The old rules of banking apply: owe $1 million to the bank and they got you; owe $1 billion and you got them.

In effect, the weaker party in the relationship between China and the United States is the former not the latter. The noise from Premier Wen and governor Zhou is simply a smokescreen to deflect this reality and create a more palatable situation going forward, at least strategically.

Unfortunately, not even the US Federal Reserve and Treasury are that stupid to buy into the risks of the Chinese offensive. If anything, the two agencies may well be overcompensating for greater weakness from China; in effect laying the groundwork for a significant swell in inflation going forward.

With friends like these
Having looked at the Chinese and US situation, it is the turn of the hapless European bankers, Trichet and King. Long-wedded to the inflation-targeting school of central banking, these two banking chiefs were thrust into a new reality following the collapse of the asset-backed commercial paper (ABCP) market in summer 2007; in what was essentially the prelude to the current crisis. Trichet is a card-carrying member of the Austrian school while King was remarkably consistent with inflation fighting through his tenure until 2007.

Already dealing with profligate governments that routinely bust their centrally set deficit criteria (Maastricht treaty), the ECB has the responsibility to supervise the formation of new debt in its backyard. As long as the region retained its ability to export to growing markets in Asia as well as mature markets in North America, the overall balance between government and private sectors remained appropriate for the debt load being undertaken to fund social welfare schemes and the like across Europe.

With the collapse of the US economy and from there to the rest of the world, the balance in Europe has decidedly shifted away to the government; over the next five years it is highly unlikely that the private sector will contribute anything to overall growth. Given that, it is clear that new debt being undertaken by European governments faces the dual risks of increasing leverage even as revenues suffer a semi-permanent decline. That is the essence of the ECB opposition to further stimulus measures in Europe.

Meanwhile in the UK, the Bank of England has been pilloried for its extremely amateurish supervision of the financial industry that has resulted in the collapse of most UK banks (see Beggar, I thy neighbour, Asia Times Online, February 28, 2009). Stung by these failures, the Old Lady of Threadneedle Street may have decided to act aggressively to counter a gathering downturn. This was done by first cutting interest rates and then by quantitative easing (QE).

For its part, the ECB has no role in supervising banks in member states and therefore was stunned to discover decrepit banks in all of them: Ireland, Germany, France, Netherlands, Belgium and so on. The collapse of the banking systems in these countries effectively jammed the compasses of the central banks.

The trouble with doing that though is that the UK is simply the US without a reserve currency status. Soon enough, the currency (GBP) fell against all others; even as global prices of commodities and services fell the decline in the GBP was to prove higher thereby helping to introduce inflation into a dying economy.

That combination of failed government efforts combined with worsening external positions is truly the hallmark of undeveloped countries (see Ask not for whom the bells toll, Asia Times Online, December 25, 2008).

Fear at the possibhle permanence in this downturn was perhaps the main reason for the ECB and the Bank of England to voice their fears respectively on leverage and inflationary risks. However, their actions also betray a sense of betrayal from the underlying governments.

Rather than helping their central banks do their job effectively, it is highly likely that both institutions will be undercut and compromised by their respective member governments. The political nature of appointments to the central banks also means that thei falling into line with the governments is simply a matter of time.

This fear of further government actions led to a historic failed auction for UK Gilts this week, for the first time in 25 years or so. Readers who remember the failed German government bond auction from January will start seeing an obvious pattern at work in Europe: no one who doesn't have a mandate to continue buying these securities has any obvious economic motivation to do so.

These are but the first reactions in the bond markets. Very soon, I expect sales of US government securities to non-US government entities to start falling as well; in effect pushing up longer-term interest rates. This will be conveniently blamed on the Chinese but of course the culprit is closer to home.

Exit strategy
For the global saver, the kind of person who is more intent on preserving his longer-term purchasing power rather than focusing illogically on currency nationality, it is possible that the past week was an eye-opener, combining as it does the elements of both a seller's and buyer's strike in tandem.

In the colloquial, the Americans are afraid the Chinese will stop buying their bonds, while the Chinese are afraid that the Americans will discover they no longer have the money to buy American bonds. In Europe, the British are worried about their economy being blown to kingdom come by inflation, while the Europeans are worried no one around really cares what they think any more.

Going back to our fictitious "global investor" in the above paragraphs, it is clear that engineering by the Group of Seven leading industrialized countries is being finely tuned to produce gazillions of inflationary prints as the sure-fire way of boosting asset prices and ensuring that everyone walks from their horrendous losses on debt holdings.

There is of course a short circuit for all this; something that jolts all of the world's central bankers back into their senses. This involves not some fictional global currency that takes months to discuss, years to build and decades to find acceptance but rather a return to basic principles.

Against the metric of gold, it is highly possible those economies in a permanent downward spiral - Europe, Japan and large parts of the US - simply do not have the fundamental strength to pull off the debt-fuelled rallies being considered now. America can no more pull off a $3 trillion deficit than the old Soviet Union could pull off the stunt of keeping the rouble on parity with the US dollar. European governments simply do not have the demographics or the organic economic strength to pay for all the bonds being issued now to offset the impact of recession on their finances; this renders the idea of the euro as a reserve currency laughable at best.

In effect, the more investors buy gold, the more desperate the lot of the world's central bankers, until finally the bankers gain the upper hand against their own governments and start focusing on the value of money rather than simply its quantity.

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