Meltdown

[Coopmv]

It looks like trade war may erupt between the US and EU on one side and China on the other side ...

US case against China export curbs signals tension
Administration files unfair-trade case against China, reflects economic tensions with Beijing

By Martin Crutsinger, AP Economics Writer
On Tuesday June 23, 2009, 4:16 pm EDT
 
WASHINGTON (AP) -- Long-simmering economic tensions between the U.S. and China boiled over Tuesday as the Obama administration filed its first unfair-trade case against Beijing, accusing it of restricting exports of materials needed to produce steel, aluminum and other products.

The administration vowed to protect the rights of American companies, and it got backing from the European Union, which filed its own case on the issue.

Some trade experts suggested China might settle the dispute rather than endure a prolonged hearing process before the Geneva-based World Trade Organization, the arbiter of global trade rules.

Analysts expect the fight over China's export restrictions will be just one of many trade cases the administration files against China. Obama made campaign pledges to take a tougher approach with U.S. trading partners in the face of soaring job losses and the longest U.S. recession since World War II.

The materials at issue include coke, bauxite, magnesium and silicon metal, the U.S. complaint notes. The U.S. and EU complaints say China's export restrictions give its companies an unfair edge over their foreign rivals by giving them access to cheaper materials, despite WTO rules against export curbs.

U.S. Trade Representative Ron Kirk said the Obama administration decided to pursue a WTO case after two years of talks between the Chinese and the Bush administration had failed to reach a resolution. He said China's actions were endangering American jobs.

"The United States believes that China is unfairly restricting exports of raw materials," Kirk said. "These actions are hurting American steel, aluminum and chemical manufacturers, among other industries, that desperately need these material to make their products."

The U.S. and EU filed separate complaints with the WTO, a step that triggers a 60-day consultation period. If the dispute is not resolved, they can formally request a WTO hearing panel. At that point, the cases likely would be merged.

If the U.S. and EU prevail at a WTO hearing -- a process that can take up to a year -- and China still refuses to lift the export restrictions, the two would be given a go-ahead to impose economic sanctions on China. Those sanctions would be equal to the harm inflicted on their companies by Beijing's actions.

"The United States has a strong case," said Dan Griswold, a trade economist at the Cato Institute, a Washington think tank. "And it certainly adds weight to the U.S. case that the two largest trading entities in the WTO have joined together. That should get China's attention."

Officials from the U.S. and EU sought to protect their domestic companies' collective ability to compete on a global scale.

"The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn," EU Trade Commissioner Catherine Ashton said in a statement.

Ashton and Kirk expressed hope the issue could be resolved during the consultation period. But if that doesn't happen, Kirk said the U.S. will go forward with a WTO case.

"Dialogue is our preferred course of action, but despite raising this issue with China repeatedly, China has not changed its policies," Kirk said.

Wei Xin, a spokeswoman for the Chinese embassy in Washington, had no immediate comment on the U.S. action.

The American Iron and Steel Institute --whose members include Nucor Corp. and United States Steel Corp. -- the United Steel Workers and other industry groups released a joint statement praising the administration's decision to pursue a WTO case against China.

"When China joined the WTO in 2001, it committed to removing these restrictions," the groups said. They called the barriers on the export of raw materials and minerals "just another way in which China favors its domestic manufacturing industries at the expense of the rest of the world."

The U.S. complaint contends that China maintains measures that restrain the export of raw materials for products -- such as coke, a key ingredient in steel production -- for which it's the world's largest producer, or near the top.

A U.S. fact sheet said "a prime example of the highly distortive effects of China's export restraints" was its decision to limit exports of coke from 336 million metric tons in 2008 down to current annual exports of only 12 million metric tons. Before the export controls were imposed, China accounted for about 60 percent of global coke production.

[BachQ]

The folly of Prop 13.  These Calfornians somehow believe there is free lunch in life.  They deserve what they are getting ... 

Budget crisis forces deep cuts at Calif. schools 

Calif. budget crisis forces schools to slash programs, fire teachers, expand class sizes   

By Terence Chea, Associated Press Writer
On Sunday June 21, 2009, 3:30 pm EDT
   
RICHMOND, Calif. (AP) -- California's historic budget crisis threatens to devastate a public education system that was once considered a national model but now ranks near the bottom in school funding and academic achievement.

Deep budget cuts are forcing California school districts to lay off thousands of teachers, expand class sizes, close schools, eliminate bus service, cancel summer school programs, and possibly shorten the academic year.

Without a strong economic recovery, which few experts predict, the reduced school funding could last for years, shortchanging millions of students, driving away residents and businesses, and darkening California's economic future.

"California used to lead the nation in education," U.S. Education Secretary Arne Duncan said during a recent visit to San Francisco. "Honestly, I think California has lost its way, and I think the long-term consequences of that are very troubling."

The budget cuts will be especially painful for struggling schools such as Richmond High School, where more than half of its 1,700 students are English learners and three-quarters are considered poor. The East Bay area school has failed to meet academic standards set by the federal No Child Left Behind Act for more than four years.

Now Richmond High stands to lose 10 percent of its 80 teachers. Electives such as French and woodshop will be scrapped. Some classes will expand to more than 40 students. And many special education and English-language students will be placed in mainstream classes.

"We're going to see more and more students slipping through the cracks as those class sizes increase," said Assistant Principal Jen Bender.

Richmond High students are worried about how the cuts will affect their education and ability to attend college.

"I think we won't be able to learn as much," said freshman Andrew Taylor, 15. "They should put more money into schools. If you take money away from schools, you're going to end up with more people going to jail."

Slammed by an epic housing bust and massive job losses, California faces a $24 billion budget deficit and could run out of cash by late July if Gov. Arnold Schwarzenegger and the Legislature cannot reach a budget deal.

To balance the budget, the governor has proposed closing more than 200 state parks, releasing prisoners early, selling state property, laying off state workers and cutting health care.

Under the governor's plan, K-12 schools and community colleges would lose $5.3 billion over the coming year -- on top of billions of dollars in recent reductions and payment delays.

The state would spend $7,806 per K-12 student in 2009-10, almost 10 percent less than two years ago, according to the Legislative Analyst's Office.

Federal stimulus funds have prevented deeper cuts to a public school system that educates 6.3 million children, of which about a quarter do not speak English well, and nearly half are considered poor under federal guidelines.

School districts have already issued layoff notices to more than 30,000 teachers and other employees, and they could issue more pink slips this summer, according to the state Department of Education.

"All of the things that make schools vibrant and help students learn are on the chopping block, if they haven't been cut already," Robin Swanson, a spokeswoman for the Education Coalition, which advocates funding increases. "When school doors open in the fall, it's going to be a very different public school system."

Many Democrats and school advocates are calling for tax increases to lessen the impact on schools, but Republicans oppose raising taxes. They say California should live within its means and school districts should be given more flexibility to spend their funds.

"You can't spend what you don't have, and you can't spend what the taxpayers don't have," said State Sen. Bob Huff, R-Diamond Bar, vice chair of the Senate Education Committee.

The unprecedented budget cuts mark a new low for a once highly regarded public school system that began its decline in 1978, when voters approved Proposition 13, which undercut counties' ability to raise property taxes and generate revenue. The ballot measure shifted the responsibility of funding schools to the state and made it more difficult to increase education funding.

California schools now rank at or near the bottom nationally in academic performance, student-teacher ratios in middle and high school, access to guidance counselors and the percentage of seniors who go directly to four-year colleges, according to a February report by UCLA's Institute for Democracy, Education and Access.

In its annual survey this year, Education Week magazine ranked California 47th in per-pupil spending and gave the state a D in academic achievement.

In recent decades, California developed a robust, innovative economy by importing educated workers from other states and countries. But a recent report by the Public Policy Institute of California projected that the state would face a shortage of nearly 1 million college-educated workers in 2025.

State education officials say the budget cuts threaten recent gains in raising test scores and closing a persistent achievement gap between black and Latino students and their white and Asian counterparts.

Democrats are now proposing to eliminate the high school exit exam as a graduation requirement. Jack O'Connell, the state schools chief, has says the exam is essential to helping identify students who fall behind.

The state's budget crisis is taking a heavy toll on school districts such as West Contra Costa Unified, whose financial troubles made it the first school district to be taken over by the state in 1991. Officials say the district, which has large numbers of poor students and English language learners, could face another state takeover if it cannot overcome a $16 million budget shortfall.

"The system is broken," said school board member Antonio Medrano. "We are being forced to cut all kinds of programs."

The cuts are expected to lead to sharp reductions or complete elimination of after-school programs, summer school, adult education, guidance counselors, and electives such as art and music. Class sizes are set to expand from 20 to more than 30 students for kindergarten through third grade.

The teachers union is threatening to strike to protest layoffs of 125 teachers, larger class sizes and proposed cuts to their health care benefits.

"We can't cut our way out of this. We really can't. There will be nothing left of education," said Pixie Hayward-Schickele, who heads the teachers union.

Richmond High School students are bracing for crowded classrooms, fewer course offerings and fewer teachers.

"This school is already overcrowded," said junior Jessica Ledesma, 17. "If there are more students, it's going to be harder to pay attention because it will be loud and crowded and stuffy in there."

Dr. Martin D. Weiss -- California Collapsing.


LA Times -- California lawmakers reject budget fix; state could begin issuing IOUs next week -- Controller John Chiang described CA's cash-flow disaster as unlike anything "since the Great Depression."  "Schwarzenegger has been telling Democrats for weeks that they should drop any hope of tax hikes and instead embrace his plan of deep cuts to education, prisons and the social safety net, including the elimination of some health and welfare programs."

[BachQ]

It looks like trade war may erupt between the US and EU on one side and China on the other side ...

US case against China export curbs signals tension
Administration files unfair-trade case against China, reflects economic tensions with Beijing

By Martin Crutsinger, AP Economics Writer
On Tuesday June 23, 2009, 4:16 pm EDT
 
WASHINGTON (AP) -- Long-simmering economic tensions between the U.S. and China boiled over Tuesday as the Obama administration filed its first unfair-trade case against Beijing, accusing it of restricting exports of materials needed to produce steel, aluminum and other products.

The administration vowed to protect the rights of American companies, and it got backing from the European Union, which filed its own case on the issue.

Some trade experts suggested China might settle the dispute rather than endure a prolonged hearing process before the Geneva-based World Trade Organization, the arbiter of global trade rules.

Analysts expect the fight over China's export restrictions will be just one of many trade cases the administration files against China. Obama made campaign pledges to take a tougher approach with U.S. trading partners in the face of soaring job losses and the longest U.S. recession since World War II.

The materials at issue include coke, bauxite, magnesium and silicon metal, the U.S. complaint notes. The U.S. and EU complaints say China's export restrictions give its companies an unfair edge over their foreign rivals by giving them access to cheaper materials, despite WTO rules against export curbs.

U.S. Trade Representative Ron Kirk said the Obama administration decided to pursue a WTO case after two years of talks between the Chinese and the Bush administration had failed to reach a resolution. He said China's actions were endangering American jobs.

"The United States believes that China is unfairly restricting exports of raw materials," Kirk said. "These actions are hurting American steel, aluminum and chemical manufacturers, among other industries, that desperately need these material to make their products."

The U.S. and EU filed separate complaints with the WTO, a step that triggers a 60-day consultation period. If the dispute is not resolved, they can formally request a WTO hearing panel. At that point, the cases likely would be merged.

If the U.S. and EU prevail at a WTO hearing -- a process that can take up to a year -- and China still refuses to lift the export restrictions, the two would be given a go-ahead to impose economic sanctions on China. Those sanctions would be equal to the harm inflicted on their companies by Beijing's actions.

"The United States has a strong case," said Dan Griswold, a trade economist at the Cato Institute, a Washington think tank. "And it certainly adds weight to the U.S. case that the two largest trading entities in the WTO have joined together. That should get China's attention."

Officials from the U.S. and EU sought to protect their domestic companies' collective ability to compete on a global scale.

"The Chinese restrictions on raw materials distort competition and increase global prices, making things even more difficult for our companies in this economic downturn," EU Trade Commissioner Catherine Ashton said in a statement.

Ashton and Kirk expressed hope the issue could be resolved during the consultation period. But if that doesn't happen, Kirk said the U.S. will go forward with a WTO case.

"Dialogue is our preferred course of action, but despite raising this issue with China repeatedly, China has not changed its policies," Kirk said.

Wei Xin, a spokeswoman for the Chinese embassy in Washington, had no immediate comment on the U.S. action.

The American Iron and Steel Institute --whose members include Nucor Corp. and United States Steel Corp. -- the United Steel Workers and other industry groups released a joint statement praising the administration's decision to pursue a WTO case against China.

"When China joined the WTO in 2001, it committed to removing these restrictions," the groups said. They called the barriers on the export of raw materials and minerals "just another way in which China favors its domestic manufacturing industries at the expense of the rest of the world."

The U.S. complaint contends that China maintains measures that restrain the export of raw materials for products -- such as coke, a key ingredient in steel production -- for which it's the world's largest producer, or near the top.

A U.S. fact sheet said "a prime example of the highly distortive effects of China's export restraints" was its decision to limit exports of coke from 336 million metric tons in 2008 down to current annual exports of only 12 million metric tons. Before the export controls were imposed, China accounted for about 60 percent of global coke production.

Good.  It's about time the US and EU filed complaints.  ... "just another way in which China favours its domestic manufacturing industries at the expense of the rest of the world."

[Coopmv]

DM, Can the Swiss government shoot down this deal since the company to be acquired is based in Switzerland?

China's Sinopec makes $7.2B grab for Addax
China's Sinopec puts up $7.2 billion for Addax Petroleum; largest overseas bid so far

By Rob Gillies, Associated Press Writer
On Wednesday June 24, 2009, 4:54 pm EDT
     
TORONTO (AP) -- Sinopec of China will acquire oil explorer Addax Petroleum for $7.2 billion in what would be the country's largest overseas takeover, with Beijing again flexing it's economic clout.

China has been aggressively pursuing major acquisitions and investments in commodity companies and the push-back from other countries has just as forceful.

Four years ago, China National Offshore Oil Company Ltd. withdrew an $18.5 billion bid for the Unocal Corp. because of a tremendous backlash in Washington.

This month, miner Rio Tinto PLC of Australia turned away a $19.5 billion investment from the Aluminum Corp. of China after it caused a political firestorm. Lawmakers lambasted a deal, saying Australia would lose control over an enormous amount of natural resources to a state-controlled company in China.

Sinopec, a refiner, would gain access to substantial reserves in West Africa and the Middle East if the takeover of Addax is approved.

Geneva-based Addax, which previously said it was considering a sale, said Wednesday its board unanimously backed the deal, which still must be approved by regulators. The company is listed on exchanges in London and Toronto.

Addax said it produced 134.7 million barrels a day of crude oil in the first quarter of this year.

Beijing is pushing hard to lock up precious commodities as its economy grows.

Beijing-based Sinopec, which is formally known as China Petroleum & Chemical Corp., is China's biggest refiner by capacity.

If the company can add exploration and production capacity, it would help cushion against spikes in global crude oil prices. The company has posted billions in losses in recent years due to caps on domestic fuel prices.

"There's no secret that China has made a policy that it wants its firms to go forth and secure the natural resources that China believes it needs for its development," said Brad Setser, a fellow at the Council on Foreign Relations.

Chinese companies are becoming more competitive globally, but they can't compete with majors such as Exxon Mobil Corp. and Royal Dutch Shell.

So the companies are going into places that oil majors are less likely to go, said Erica Downs, Chinese Energy Fellow at Brookings Institution Washington.

That includes places like Gabon and Sudan, where China is a top trading partner.

With Addax also comes a presence in northern Iraq, where leaders of the self-ruled Kurdish region have been signing oil contracts that the central government calls illegal.

"Good reserves in stable places have been locked up by the big multinationals," said Nick Lardy, an expert on China's economy at the Peterson Institute, a Washington think tank. "If you're a new player and you have a substantial appetite for access to oil on some long-term basis, then you are more or less forced to go into high risk places where the majors are not willing to tread."

Sinopec, a wholly owned subsidiary of China Petrochemical Corp., will pay $46.17 per share.

The offer is a 47 percent premium to closing market price for Addax on June 5, the day prior to it's public announcement of sales talks.

Shares of Addax Petroleum Corp. jumped more than eight percent to $49.74 Canadian ($43.31) in early afternoon trading on the Toronto stock exchange.

[Coopmv]

Good.  It's about time the US and EU filed complaints.  ... "just another way in which China favours its domestic manufacturing industries at the expense of the rest of the world."

The US and EU will need to take much tougher actions than just filing complaints since I don't think complaints will work ...

[Coopmv]

DM;  Not sure if you saw this article from a good few months ago.  The Chinese Communists want to have it both ways.  While it wants to expand overseas and buy foreign assets, it does not allow foreign countries to buy Chinese assets.  BTW, did you know that St Bernard puppies have been bought from Switzerland to be slaughtered in China for meat?  This is an outrage since I own three dachshunds ...

RTTNews) - Beverages giant The Coca-Cola Co.'s (KO | Quote | Chart | News | PowerRating) efforts to establish itself in one of the world's fastest growing consumer markets received a setback on Wednesday, with the Chinese government deciding to block the company's US$2.4 billion takeover of China Huiyuan Juice Group Ltd. (CYUNF.PK) on anti-monopoly grounds.

China's Commerce Ministry has said in its Web site that the proposed acquisition would have been bad for competition, as it could eliminate smaller players and raise prices for consumers. Coca-Cola was earlier asked for solutions to minimize the adverse impact, but the company's suggestions were not sufficient for the government to approve the deal. The rejection was based on a law passed last year and Coca-Cola cannot appeal the decision.

If approved, the deal would have been the largest-ever buyout of a Chinese company by a foreign competitor. The two companies together would have had about 40% of China's fruit juice market.

China is Coke's fourth-largest market, where it faces stiff competition from arch rival PepsiCo Inc. (PEP | Quote | Chart | News | PowerRating). Huiyuan is a successful homegrown brand. It reportedly has over a 10% share in the Chinese fruit and vegetable juice market and holds 42% of China's pure juice market.

Last year, an attempt by U.S. investment firm Carlyle Group to buy control of construction equipment maker Xugong Group had to be dropped on regulatory concerns as well as opposition from Xugong's domestic rivals.

The latest decision has added fuel to a prevalent view of the Chinese government being increasingly protective of domestic businesses. It may have an impact on the efforts of Chinese companies to buy foreign firms.

Last month, China's biggest aluminum producer, Aluminum Corp. of China (ACH | Quote | Chart | News | PowerRating), or Chinalco, and Anglo-Australian miner Rio Tinto plc (RTP, RIO.L) entered into a strategic partnership worth US$19.5 billion. The announcement led to criticism that the country's resource wealth is being taken abroad. Monday, Australian Foreign Investment Review Board reportedly decided to delay its decision to endorse the deal.

Four years ago, China National Offshore Oil Corp. had tried to buy American oil company Unocal Corp. However, the offer did not reach completion on fears of endangering American energy security.

It was in September 2008 that Coca-Cola announced its intention to acquire Huiyuan Juice for HK$12.20 per share in cash, leading to protests by nationalists as well as rival juice producers who complained that the U.S. company would have a larger control of the Chinese beverage market.

It is assumed that the Chinese government's decision might have been influenced by the economic crisis that is gripping the world. One of the strategies of the country is to develop home grown competitive brands that will have an upper hand in the domestic market after the world recovers from the slump.

Meanwhile, Coca-Cola said it was disappointed with the decision, but would respect it. The company added that it would focus on growing its existing brands in China and that its long-term commitment to the local market would continue.

Earlier this month, Coca-Cola had announced that the company would invest $2 billion in China over the next three years to build new bottling plants and distribution infrastructure, which was perceived by many as an attempt to muster Chinese support for the acquisition of Huiyuan.

KO closed Tuesday's regular trade at $41.45, up from the previous close of $41.27, on 10.12 million shares.

[BachQ]

Euro zone industrial output slumps by record 21.6 percent in year to April

LONDON (AP) -- Industrial production in the 16 countries that use the euro slumped in the year to April, official figures showed Friday, more indication that the euro zone may emerge from recession later than the United States or Britain.

The European Union's statistics office Eurostat said industrial output a record 21.6 percent annually from March's 19.3 percent.

Europe's export-driven economy relies heavily on industrial output and its recovery, whenever it comes, will provide a clear indication that the worst of the recession is over. Sharply lower industrial output was blamed for the massive 2.5 percent quarterly fall in the euro zone's first quarter gross domestic product.

The recession in Germany, the euro zone's biggest single economy, was even greater as demand for its high-value exports, such as cars and heavy machinery, slumped amid the collapse in global trade.

Earlier this week, figures for Britain, which is outside the euro zone, showed that industry may be picking up. Many economists think Britain's manufacturers may be benefiting from the pound's fall against the euro and the dollar and that conversely Europe's exporters are struggling as the euro remains stronger in the foreign exchange markets.

A similar picture has emerged in the U.S. where a run of better than expected economic indicators have helped the stock markets rally around the world -- the world economy is highly dependent on how soon the U.S. emerges from recession.

"The rebound in risk appetite reflects hopes of a stabilisation or recovery in the global economy," said Daniele Antonucci, an economist at Capital Economics.

"But with less convincing signs of improvement, the recovery in the euro zone will lag behind," said Antonucci.

This seemingly multi-speed recovery could well raise tensions that this weekend's gathering of G-8 finance ministers in Lecce, Italy.

Despite apparently agreeing to a raft of initiatives at the G-20 summit of world leaders in London in April, splits seem to have emerged among policymakers over tax and monetary policies in the last few weeks.

Europe, especially Germany, has appeared increasingly at odds with the U.S. and Britain, particularly over the policies being enacted by the U.S. Federal Reserve and the Bank of England. Both banks have embraced quantitative easing -- pumping newly created money into the economy by buying government and corporate bonds -- unlike the European Central Bank.

Meanwhile, there are some worries in the U.S. and Britain that continental Europe has not done enough to deal with the recession -- hence the continuing dearth of resurgent signs in the euro zone economy.

"The Americans believe that the Europeans are 'free riding' on the back of American monetary and fiscal stimulus," said Neil Mackinnon, chief economist at ECU Group.

And Britain's finance minister Alistair Darling suggested to the Financial Times newspaper Friday that some European governments have failed to clean up their banks as much as was needed.

"If there is a problem, it doesn't get any better by walking around it and hoping it will go away," he told the newspaper in an interview.

Capital Economics' Antonucci said the banking sector could turn out to be one of the euro zone's main vulnerabilities, echoing recent warnings from the International Monetary Fund, which has estimated that the banks in the single currency zone have so far incurred just a fifth of their potential losses.

"With measures to help the banking sector still disappointing, the risk is that the euro zone has yet to feel the worst of the credit crunch," said Antonucci.

http://www.guardian.co.uk/business/feedarticle/8575956

25 Jun 2009 – Euro zone industrial new orders plunge by a third y/y in April, the steepest annual drop since comparable records began in 1995; orders for intermediate and capital goods, which reflect on investment trends, fell 38.3% and 39.1%  year-on-year respectively, underlining the depth of the economic recession.


Japan's exports tumble at a faster pace in May, plunging 41% (vs. 39% in April), extending Japan's deepest trade slump since World War II.


Telegraph -- 60% of UK companies plan to freeze pay or negotiate cuts; 60% of UK businesses have frozen recruitment across all or part of their operations.

[BachQ]

Reuters -- Moody's warning of a significant ("multi-notch") downgrade on California's debt stuns CA officials   CA's current debt rating is just five notches above speculative grade, thus Moody's has sounded the alarm that CA's debt rating may plunge into "junk" status if CA lawmakers fail to reach a budget deal soon.  Said Moody's: "If the legislature does not take action quickly, the state's cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July. Lack of action could result in a multi-notch downgrade." 

California's leasing debt and other state-related debt are also on review, affecting a total of $72 billion of debt.  A downgrade could push California's borrowing costs up at time when state officials expect to issue up to $9 billion in revenue anticipation notes as soon as possible after a budget agreement is notched -- a deal whose timing is in doubt.

"I cannot remember reading a ratings note that raised the specter of a multi-notch downgrade," said H.D. Palmer, a spokesman for Schwarzenegger on state finance matters. "It's another clear warning from the financial markets that there will be substantial and costly consequences if the legislature does not send the governor a budget that he can sign."

The fiscal fiasco in CA is a godsend for the Republicans as no GOP presidential candidate has won the state since Ronald Reagan and they have little to lose to vote against a bailout or if there is one, force the Democrats to swallow the bitter pill.  For Democrats outside of CA, if they vote for the bailout, the payback will come next year since voters in the other forty-nine states are fed up with any bailout.  The fiscal train wreck in CA has been many years in the making.  Yeah, Prop 13 is the new math - low tax and generous everything provided by CA .... 

25 Jun 09--  LA TIMES: Fitch downgrades Calif. one step closer to junk status — "The downgrade to A-minus is based on the magnitude of the state's financial and institutional challenges and persistent economic and revenue weakening. Fitch expects the state's finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse." Last week, Standard & Poor's and Moody's Investors Service both put California on notice that they may cut their ratings on the state's debt.

Another clear signal that CA needs to get its sh!t together ASAP.

[BachQ]

Coop, protectionism is looking mighty tempting.

DM;  Not sure if you saw this article from a good few months ago.  The Chinese Communists want to have it both ways.  While it wants to expand overseas and buy foreign assets, it does not allow foreign countries to buy Chinese assets.  BTW, did you know that St Bernard puppies have been bought from Switzerland to be slaughtered in China for meat?  This is an outrage since I own three dachshunds ...

RTTNews) - Beverages giant The Coca-Cola Co.'s (KO | Quote | Chart | News | PowerRating) efforts to establish itself in one of the world's fastest growing consumer markets received a setback on Wednesday, with the Chinese government deciding to block the company's US$2.4 billion takeover of China Huiyuan Juice Group Ltd. (CYUNF.PK) on anti-monopoly grounds.

China's Commerce Ministry has said in its Web site that the proposed acquisition would have been bad for competition, as it could eliminate smaller players and raise prices for consumers. Coca-Cola was earlier asked for solutions to minimize the adverse impact, but the company's suggestions were not sufficient for the government to approve the deal. The rejection was based on a law passed last year and Coca-Cola cannot appeal the decision.

If approved, the deal would have been the largest-ever buyout of a Chinese company by a foreign competitor. The two companies together would have had about 40% of China's fruit juice market.

China is Coke's fourth-largest market, where it faces stiff competition from arch rival PepsiCo Inc. (PEP | Quote | Chart | News | PowerRating). Huiyuan is a successful homegrown brand. It reportedly has over a 10% share in the Chinese fruit and vegetable juice market and holds 42% of China's pure juice market.

Last year, an attempt by U.S. investment firm Carlyle Group to buy control of construction equipment maker Xugong Group had to be dropped on regulatory concerns as well as opposition from Xugong's domestic rivals.

The latest decision has added fuel to a prevalent view of the Chinese government being increasingly protective of domestic businesses. It may have an impact on the efforts of Chinese companies to buy foreign firms.

Last month, China's biggest aluminum producer, Aluminum Corp. of China (ACH | Quote | Chart | News | PowerRating), or Chinalco, and Anglo-Australian miner Rio Tinto plc (RTP, RIO.L) entered into a strategic partnership worth US$19.5 billion. The announcement led to criticism that the country's resource wealth is being taken abroad. Monday, Australian Foreign Investment Review Board reportedly decided to delay its decision to endorse the deal.

Four years ago, China National Offshore Oil Corp. had tried to buy American oil company Unocal Corp. However, the offer did not reach completion on fears of endangering American energy security.

It was in September 2008 that Coca-Cola announced its intention to acquire Huiyuan Juice for HK$12.20 per share in cash, leading to protests by nationalists as well as rival juice producers who complained that the U.S. company would have a larger control of the Chinese beverage market.

It is assumed that the Chinese government's decision might have been influenced by the economic crisis that is gripping the world. One of the strategies of the country is to develop home grown competitive brands that will have an upper hand in the domestic market after the world recovers from the slump.

Meanwhile, Coca-Cola said it was disappointed with the decision, but would respect it. The company added that it would focus on growing its existing brands in China and that its long-term commitment to the local market would continue.

Earlier this month, Coca-Cola had announced that the company would invest $2 billion in China over the next three years to build new bottling plants and distribution infrastructure, which was perceived by many as an attempt to muster Chinese support for the acquisition of Huiyuan.

KO closed Tuesday's regular trade at $41.45, up from the previous close of $41.27, on 10.12 million shares.

DM, Can the Swiss government shoot down this deal since the company to be acquired is based in Switzerland?

China's Sinopec makes $7.2B grab for Addax
China's Sinopec puts up $7.2 billion for Addax Petroleum; largest overseas bid so far

By Rob Gillies, Associated Press Writer
On Wednesday June 24, 2009, 4:54 pm EDT
     
TORONTO (AP) -- Sinopec of China will acquire oil explorer Addax Petroleum for $7.2 billion in what would be the country's largest overseas takeover, with Beijing again flexing it's economic clout.

China has been aggressively pursuing major acquisitions and investments in commodity companies and the push-back from other countries has just as forceful.

Four years ago, China National Offshore Oil Company Ltd. withdrew an $18.5 billion bid for the Unocal Corp. because of a tremendous backlash in Washington.

This month, miner Rio Tinto PLC of Australia turned away a $19.5 billion investment from the Aluminum Corp. of China after it caused a political firestorm. Lawmakers lambasted a deal, saying Australia would lose control over an enormous amount of natural resources to a state-controlled company in China.

Sinopec, a refiner, would gain access to substantial reserves in West Africa and the Middle East if the takeover of Addax is approved.

Geneva-based Addax, which previously said it was considering a sale, said Wednesday its board unanimously backed the deal, which still must be approved by regulators. The company is listed on exchanges in London and Toronto.

Addax said it produced 134.7 million barrels a day of crude oil in the first quarter of this year.

Beijing is pushing hard to lock up precious commodities as its economy grows.

Beijing-based Sinopec, which is formally known as China Petroleum & Chemical Corp., is China's biggest refiner by capacity.

If the company can add exploration and production capacity, it would help cushion against spikes in global crude oil prices. The company has posted billions in losses in recent years due to caps on domestic fuel prices.

"There's no secret that China has made a policy that it wants its firms to go forth and secure the natural resources that China believes it needs for its development," said Brad Setser, a fellow at the Council on Foreign Relations.

Chinese companies are becoming more competitive globally, but they can't compete with majors such as Exxon Mobil Corp. and Royal Dutch Shell.

So the companies are going into places that oil majors are less likely to go, said Erica Downs, Chinese Energy Fellow at Brookings Institution Washington.

That includes places like Gabon and Sudan, where China is a top trading partner.

With Addax also comes a presence in northern Iraq, where leaders of the self-ruled Kurdish region have been signing oil contracts that the central government calls illegal.

"Good reserves in stable places have been locked up by the big multinationals," said Nick Lardy, an expert on China's economy at the Peterson Institute, a Washington think tank. "If you're a new player and you have a substantial appetite for access to oil on some long-term basis, then you are more or less forced to go into high risk places where the majors are not willing to tread."

Sinopec, a wholly owned subsidiary of China Petrochemical Corp., will pay $46.17 per share.

The offer is a 47 percent premium to closing market price for Addax on June 5, the day prior to it's public announcement of sales talks.

Shares of Addax Petroleum Corp. jumped more than eight percent to $49.74 Canadian ($43.31) in early afternoon trading on the Toronto stock exchange.

Coop, we're witnessing the unfolding of a very deliberate trend: China is buying up commodity-rich companies to secure its future resource needs.  Extremely, extremely smart move on China's part.  While the Western superpowers have been preoccupied bailing out failed companies and greedy banksters, China has been busy tightening its stranglehold over coveted industrial commodities.

Part of the motivation is to corner the market on sought-after resources.  For example, earlier this month, China bought companies to enable it to control of 95% of the market for rare-earth metals. By any definition, when you own 95% of the mining and production of rare industrial elements, you have CORNERED THE MARKET. This is highly significant since rare-earth metals are essential for solar panels, wind turbines, and other green technologies.  As the Times Online notes: "The weight and magnetic properties of rare-earth metals have made them important for wind turbines, essential to hybrid cars, and indispensable if the world ever hopes to covert to fully electric vehicles..." ("Rare earth oxides go into these super magnets that are a key part of these hybrid and electric cars," notes metals analyst John Kaiser.)


Part of the motivation is to enable China to diversify out of the dollar and into industrial commodities.

China is "definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.  Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can: "China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of  reserves. They get ten times the impact, and can cover their infrastructure for 50 years."


And part of the motivation is China's unquenchable thirst for oil ...

China's cash-rich, state-controlled oil companies and its state development bank are on a buying spree, taking advantage of low crude prices and shrunken credit markets to snap up global assets that will help feed the country's enormous appetite for energy. The Chinese are the most aggressive deal makers in the international oil industry right now, either through straight acquisitions or through innovative loans to foreign oil companies with crude as the currency of repayment.

*** But there is a nagging concern that China may hoard resources if supplies tighten or the conflict in the Middle East threatens production there, and that the booming Asian giant would meet its energy security needs at the expense of Western nations. Sinopec's purchase of Addax Petroleum is one of the strongest signs yet that China's international resources grab is real and gaining momentum.

... and natural gas ...

ASHGABAT, Turkmenistan—China signed a 30-year deal to increase purchases of natural gas from Turkmenistan by 30 percent, state media reported Thursday -- a landmark agreement for Beijing as it competes with Moscow for access to Central Asia's energy wealth.


... and gold ... China "funded a second strategic petroleum reserve and they plan to buy $80 billion worth of gold. That's two Fort Knox's. Both of those investments only make sense if you expect significant dollar inflation."


... and global assets ...

"Beijing is trying to use its treasure trove of U.S. debt, its holdings of some $2 trillion in currency reserves, mostly in dollars, to go bargain-hunting for assets in the worldwide credit crunch and recession. ... Chinese oil and mining companies, all either directly or indirectly government-owned, already have made $23.2 billion in overseas acquisitions this year."

[Coopmv]

Very thought provoking article.  What can I say, America, the land of the spendthrift fools ...

Charles Wheelan, Ph.D. The Naked Economist

Posted on Tuesday, June 23, 2009, 12:00AM

Ben Franklin supposedly said that it's better to skip supper and go to bed hungry than it is to wake up in debt. Ben would be quite disappointed in us. We Americans didn't skip dinner; instead, we opted over the past decade to gorge at the buffet and then charge it.

We woke up as the world's largest debtor -- so deeply in debt that our global creditors are getting nervous, and rightfully so.

Here are some economic realities associated with our deepening fiscal hole.

It's bad. As in, $11 trillion bad. That number alone doesn't mean much, at least without context. So here is some context. First, that's roughly $40,000 for every man, woman, and child in the country. Second, our debt is projected to grow to roughly 100 percent of GDP by 2010, meaning that, if we were to devote everything we produce as a nation to paying down debt, it would take us an entire year to pay off what we owe.

Eating Up the Global Capital Pool

Other countries have become more indebted as a percentage of GDP, but they were small countries, so they sucked up less of the global capital pool. There is only so much money in the world, and we have borrowed a shocking proportion of it. The only other time the U.S. has been so indebted was at the end of World War II.

Big debt means big interest payments. The Chinese haven't loaned us a trillion dollars because we're good-looking; they've loaned us a trillion dollars because we pay for the privilege of using that capital. Interest payments now make up more than 8 percent of the federal budget -- meaning that nearly one of every 10 of your tax dollars gets you absolutely nothing in return. No schools, no bridges, no domestic wiretaps. That's just the cost of servicing the debt we've run up.

And we've done nothing terribly productive with all that borrowed money. Debt, after all, is not inherently bad. If you borrow $100,000 to go to medical school, then you've probably done a very smart thing. When you graduate, your earning potential will be higher, enabling you to live better even after you pay off the loans (with interest). In this case, you used borrowed money to invest in something that made you more productive.

Now suppose that you borrowed $100,000 to sustain a lifestyle that you could not otherwise afford: to pay the rent, to buy nice clothes, and to make the payments on your luxury car. When that bill comes due (with interest), you're no more productive than you were when you started borrowing. You borrowed used money for consumption, not investment.

Unfortunately, America's borrowing resembles the latter more than the former. We haven't upgraded our transportation infrastructure or made major investments in alternative energy or financed education for those who could not otherwise afford it.

Stop the Bickering

We need to stop bickering about who got us here. Was it the Bush tax cuts (yes) or the Obama stimulus (yes) or profligate Congressional spending (yes) or voters who continually reward pork more than parsimony (yes)? But analyzing just overcomplicates things. We are deeply in debt because we have routinely spent more than we collect in taxes. That's just a mathematical reality that has become needlessly confounded with politics.

If you're a small government conservative, that's great. But let's say enough of the tax cuts without corresponding spending cuts. Those aren't tax cuts; they are tax postponements. You've just left the bill for future taxpayers, with interest.

And if you believe that government can and should build a stronger America, terrific. I'm sympathetic: I like early childhood education and the high-speed rail and Army sharpshooters who kill pirates. If you want those things, then pay for them.

Big government or small government, the revenues need to equal the expenditures. It really is that simple.

When the Big Bills Come Due

The big bills haven't even come due yet. If the U.S. were a family, we'd be crouched over the kitchen table trying to figure out how to pay the Amex and Visa bills -- and the gigantic Mastercard bill would still be in the mail.

The big bill still in the mail for the United States is for our entitlement programs -- primarily Social Security and Medicare. We've made huge commitments to these programs that are not adequately funded. That Social Security check you're counting on when you turn 65 doesn't show up in the debt figures, but it's still money that we will owe. Lots and lots of money.

And the Chinese are worried U.S. debt, as they should be. All debtors have creditors; ours are all over the world. The biggest one is the Chinese government, which has been buying up U.S. Treasury bonds with all the vigor and foresight of a 1990s Las Vegas real estate developer.

If we don't honor our bonds, China doesn't get to repossess the White House or the national parks; they don't get to carve their own leaders on Mt. Rushmore. Treasury debt is secured by the "full faith and credit of the U.S. government" -- which won't command much at auction, if it comes to a foreclosure type situation.

Chinese officials aren't worried about bankruptcy because the U.S. has an easier and more insidious option -- we can print our way out of the problem. Our debt is denominated in dollars, and the U.S. government has the authority to print those dollars. We could take a page from the Zimbabwe policy manual and just print money to pay our bills -- thereby debasing the currency, creating inflation, and devaluing the real value of what we owe.

Is that a sensible solution? No, as it imposes the costs of inflation on all of us. I don't know anyone eager to revisit the 1970s (in terms of economic performance or fashion).

Is it a possibility? You bet. In fact, I'm surprised that long-term interest rates haven't climbed more than they have. (When long-term lenders fear inflation, they demand higher interest rates to protect against that contingency.)

The solution to all this is straightforward: Spend less than we take in, and use the surplus to pay down debt. At the risk of lapsing into economics jargon, yes, this is going to suck. Think about it: Americans don't like their current tax bills -- which aren't even high enough to pay for our current spending, let alone the bills we've run up from the past. In the future, we will have to pay more and get less.

But we've done it before. We paid off the debt accumulated during World War II. In fact, the ensuing decades saw some of the most impressive gains in wealth and productivity in American history. But it will require a radical change from what we're doing now.

An economic recovery will help. But we can't pretend that will be enough. We need to raise taxes, cut spending, and/or reform our entitlement programs. Probably all three, and in a serious way.

Will that dampen economic growth in the short run? Yes. Will it jeopardize important social programs? Yes. Will it compromise our ability to make important public investments? Yes. Does it limit what we can spend on healthcare reform? Yes.

But as Ben Franklin would have pointed out, we should have thought about that before ordering room service and then charging it to a credit card.

[Coopmv]

Coop, protectionism is looking mighty tempting.

Coop, we're witnessing the unfolding of a very deliberate trend: China is buying up commodity-rich companies to secure its future resource needs.  Extremely, extremely smart move on China's part.  While the Western superpowers have been preoccupied bailing out failed companies and greedy banksters, China has been busy tightening its stranglehold over coveted industrial commodities.

Part of the motivation is to corner the market on sought-after resources.  For example, earlier this month, China bought companies to enable it to control of 95% of the market for rare-earth metals. By any definition, when you own 95% of the mining and production of rare industrial elements, you have CORNERED THE MARKET. This is highly significant since rare-earth metals are essential for solar panels, wind turbines, and other green technologies.  As the Times Online notes: "The weight and magnetic properties of rare-earth metals have made them important for wind turbines, essential to hybrid cars, and indispensable if the world ever hopes to covert to fully electric vehicles..." ("Rare earth oxides go into these super magnets that are a key part of these hybrid and electric cars," notes metals analyst John Kaiser.)


Part of the motivation is to enable China to diversify out of the dollar and into industrial commodities.

China is "definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.  Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can: "China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of  reserves. They get ten times the impact, and can cover their infrastructure for 50 years."


And part of the motivation is China's unquenchable thirst for oil ...


... and natural gas ...

ASHGABAT, Turkmenistan—China signed a 30-year deal to increase purchases of natural gas from Turkmenistan by 30 percent, state media reported Thursday -- a landmark agreement for Beijing as it competes with Moscow for access to Central Asia's energy wealth.


... and gold ... China "funded a second strategic petroleum reserve and they plan to buy $80 billion worth of gold. That's two Fort Knox's. Both of those investments only make sense if you expect significant dollar inflation."


... and global assets ...

"Beijing is trying to use its treasure trove of U.S. debt, its holdings of some $2 trillion in currency reserves, mostly in dollars, to go bargain-hunting for assets in the worldwide credit crunch and recession. ... Chinese oil and mining companies, all either directly or indirectly government-owned, already have made $23.2 billion in overseas acquisitions this year."

The Chinese Communists cheated their way into the WTO and manipulated the WTC rules to build itself up the best it can over the past decade.  Will they adhere by the WTC rules?  Absolutely not!  When was the last time any communists ever keep their words?  How can the WTO rules be possibly enforced?  Not a fat chance.

[BachQ]

Big debt means big interest payments. The Chinese haven't loaned us a trillion dollars because we're good-looking; they've loaned us a trillion dollars because we pay for the privilege of using that capital. Interest payments now make up more than 8 percent of the federal budget -- meaning that nearly one of every 10 of your tax dollars gets you absolutely nothing in return. No schools, no bridges, no domestic wiretaps. That's just the cost of servicing the debt we've run up.  *** In fact, I'm surprised that long-term interest rates haven't climbed more than they have. (When long-term lenders fear inflation, they demand higher interest rates to protect against that contingency.)

This is worrisome.  If interest rates reach elevated levels, the money spent for debt service will crowd-out money available for other essential govt services; there will be a full-blown fiscal crisis, which will only worsen as the govt racks up more and more debt.  Interest payments are already 8% of the federal budget ... but what happens when that reaches 15%? 20%? 25%?

[Coopmv]

DM,  The head of GE has now acknowledged that outsourcing has gone too far and intends to reverse the trend at his company.  Who knows, if many fortune 500 companies start to do the same, this will surely become very interesting as GE is perceived as a corporate leader in the US.  Perhaps the better paid jobs in China and India will start to go flat and then decline.  The European countries will probably follow since they have followed the American lead in the outscourcing movement of the past decade.  This is really the silver lining to this financial debacle.  With most companies share prices at decade lows, insourcing jobs now will hardly hurt any further ...    


GE's CEO calls for American manufacturing rebirth
General Electric's Immelt says manufacturing jobs should comprise 20 percent of US employment

By Jim Irwin, Associated Press Writer
On Friday June 26, 2009, 6:22 pm EDT

BIRMINGHAM, Mich. (AP) -- The United States should aim to have manufacturing jobs comprise at least 20 percent of total employment, about twice what it is now, General Electric Co. Chairman and CEO Jeffrey Immelt said Friday.


Speaking to the Economic Club of Detroit, Immelt outlined what he called an American industrial renewal driven by emphasis on manufacturing and exports, investment in new technology and research and development, innovations in clean energy and affordable health care.

The U.S. has faltered as it has moved toward a service- and consumption-based economy, Immelt said. He singled out financial services, which he said comprise 45 percent of earnings of companies on the Standard & Poor's 500 index, up from 10 percent a quarter-century earlier.

American manufacturing can be reinvigorated through investment in research and development, infrastructure and training, and by fostering public-private partnerships, Immelt said.

There is nothing "predestined or inevitable about the industrial decline of the U.S., if we as a people are prepared to reverse it," he said.

"We would do much better to observe the example of China. They've been growing fast because they invest in technology and they make things. They have no intention of letting up in manufacturing in order to evolve into a service economy.

"They know where the money is and they aim to get there first," Immelt said. "America has to get back in that game."

Earlier Friday, Immelt announced GE is developing a $100 million research and development facility in Wayne County's Van Buren Township, 25 miles west of Detroit. About 1,200 scientists and engineers initially will be hired to develop manufacturing technologies for GE's renewable energy, aircraft engine, gas turbine and other products.

[BachQ]

DM,  The head of GE has now acknowledged that outsourcing has gone too far and intends to reverse the trend at his company.  Who knows, if many fortune 500 companies start to do the same, this will surely become very interesting as GE is perceived as a corporate leader in the US.  Perhaps the better paid jobs in China and India will start to go flat and then decline.  The European countries will probably follow since they have followed the American lead in the outscourcing movement of the past decade.  This is really the silver lining to this financial debacle.  With most companies share prices at decade lows, insourcing jobs now will hardly hurt any further ...    


GE's CEO calls for American manufacturing rebirth
General Electric's Immelt says manufacturing jobs should comprise 20 percent of US employment

By Jim Irwin, Associated Press Writer
On Friday June 26, 2009, 6:22 pm EDT

BIRMINGHAM, Mich. (AP) -- The United States should aim to have manufacturing jobs comprise at least 20 percent of total employment, about twice what it is now, General Electric Co. Chairman and CEO Jeffrey Immelt said Friday.


Speaking to the Economic Club of Detroit, Immelt outlined what he called an American industrial renewal driven by emphasis on manufacturing and exports, investment in new technology and research and development, innovations in clean energy and affordable health care.

The U.S. has faltered as it has moved toward a service- and consumption-based economy, Immelt said. He singled out financial services, which he said comprise 45 percent of earnings of companies on the Standard & Poor's 500 index, up from 10 percent a quarter-century earlier.

American manufacturing can be reinvigorated through investment in research and development, infrastructure and training, and by fostering public-private partnerships, Immelt said.

There is nothing "predestined or inevitable about the industrial decline of the U.S., if we as a people are prepared to reverse it," he said.

"We would do much better to observe the example of China. They've been growing fast because they invest in technology and they make things. They have no intention of letting up in manufacturing in order to evolve into a service economy.

"They know where the money is and they aim to get there first," Immelt said. "America has to get back in that game."

Earlier Friday, Immelt announced GE is developing a $100 million research and development facility in Wayne County's Van Buren Township, 25 miles west of Detroit. About 1,200 scientists and engineers initially will be hired to develop manufacturing technologies for GE's renewable energy, aircraft engine, gas turbine and other products.

Awesome, Coop!  I would like to read Immelt's entire speech.  Hopefully this clarion call will wake up other companies (and legislatures) to impel them to action and to cease their self-destructive ways.

The root causes of the "downfall" of Western powers is so obvious, yet it needs to be understood and acted upon by every CEO and every legislator.  It's too bad that it took a total collapse of the financial sector to draw attention to this problem, but Immelt is correct that one key solution would be to move jobs away from a service economy into a manufacturing/technology infrastructure.

It's not too late to reverse the current trend.

The problem, of course, is that (1) Westerners have become accustomed to their service-oriented consumerism; and (2) rebuilding a technological/industrial/manufacturing infrastructure will be expensive.  IOW, this redirection will take lots of WORK & MONEY. As one commentator notes:

Converting America back to a manufacturing economy that could be a net exporter of goods would cost in the trillions of dollars. This would have to be done during a period when the national budget is already remarkably stretched and large corporations are unlikely to make massive capital expenditure. It would have to be done with a large decrease in the cost of US labor, which would undermine consumer spending by cutting American wages. *** The manufacturing and industrial part of the American economy has been leaving the country for decades. It is impossible to raise the capital to create it again. By encouraging growth of the sectors of US businesses that are still doing well, and protecting their interests worldwide by the rule of law, the American economy can rebound strongly and  have an opportunity for sustained GDP growth.

To accomplish this will require an extreme commitment and concerted effort by govt, investors, and businesses.  It would require an overhaul of the tax code, and would entail protectionist policies.

In a free market economy, every country must exploit its respective competitive advantage.  For the US, that comparative advantage resides in research & development, intellectual property, and innovative technologies.  The US cannot "pretend" that it can succeed in manufacturing if other countries (China, Japan, India, Korea ...) have an inherent comparative advantage in manufacturing.

So step one is to fully understand the home country's comparative advantages:

"US companies are still the major providers of software around the world. The most successful online companies are almost entirely US based. The tech consulting business is a major part of the American employment and tax base. A large portion of the world's medical and aerospace industries are still in America. Most of the premium media content comes from US studios and television properties."

Under Bush/Cheney, the US had a great opportunity to become a leader in renewable and alternative energy technologies (solar panels; wind turbines; battery technologies; mass transit).  Bush/Cheney, of course, were utterly obsessed with oil, Iraq, Halliburton, etc.  Let's hope that Obama, Gordon Brown, and others will not squander this opportunity ...  and hopefully Obama and Gordon Brown will read and act upon Immelt's speech.  0:)

[Coopmv]

Awesome, Coop!  I would like to read Immelt's entire speech.  Hopefully this clarion call will wake up other companies (and legislatures) to impel them to action and to cease their self-destructive ways.

The root causes of the "downfall" of Western powers is so obvious, yet it needs to be understood and acted upon by every CEO and every legislator.  It's too bad that it took a total collapse of the financial sector to draw attention to this problem, but Immelt is correct that one key solution would be to move jobs away from a service economy into a manufacturing/technology infrastructure.

It's not too late to reverse the current trend.

The problem, of course, is that (1) Westerners have become accustomed to their service-oriented consumerism; and (2) rebuilding a technological/industrial/manufacturing infrastructure will be expensive.  IOW, this redirection will take lots of WORK & MONEY. As one commentator notes:

To accomplish this will require an extreme commitment and concerted effort by govt, investors, and businesses.  It would require an overhaul of the tax code, and would entail protectionist policies.

In a free market economy, every country must exploit its respective competitive advantage.  For the US, that comparative advantage resides in research & development, intellectual property, and innovative technologies.  The US cannot "pretend" that it can succeed in manufacturing if other countries (China, Japan, India, Korea ...) have an inherent comparative advantage in manufacturing.

So step one is to fully understand the home country's comparative advantages:

Under Bush/Cheney, the US had a great opportunity to become a leader in renewable and alternative energy technologies (solar panels; wind turbines; battery technologies; mass transit).  Bush/Cheney, of course, were utterly obsessed with oil, Iraq, Halliburton, etc.  Let's hope that Obama, Gordon Brown, and others will not squander this opportunity ...  and hopefully Obama and Gordon Brown will read and act upon Immelt's speech.  0:)

The Bush-Cheney Administration was every bit as bad as the Carter-Mondale Administration with the exception that there was no military debacle like the failed rescue mission in the Iranian desert due to savage cutbacks in the military made in the mid 70's.  That said, there are few good things the last regime has accomplished.  Its over-emphasis on the service economy, especially the finance industry, was how the US landed in the current predicament.  To be sure, the Clinton-Gore Adminstration sold the seeds of destruction, which unfortunately the Bush-Cheney Administration never worked hard to avert.  The Clinton-Gore Administration was also largely responsible for 9/11 because Clinton did not want to confront the bin Laden threat early on ...

[Coopmv]

Coop, protectionism is looking mighty tempting.

Coop, we're witnessing the unfolding of a very deliberate trend: China is buying up commodity-rich companies to secure its future resource needs.  Extremely, extremely smart move on China's part.  While the Western superpowers have been preoccupied bailing out failed companies and greedy banksters, China has been busy tightening its stranglehold over coveted industrial commodities.

Part of the motivation is to corner the market on sought-after resources.  For example, earlier this month, China bought companies to enable it to control of 95% of the market for rare-earth metals. By any definition, when you own 95% of the mining and production of rare industrial elements, you have CORNERED THE MARKET. This is highly significant since rare-earth metals are essential for solar panels, wind turbines, and other green technologies.  As the Times Online notes: "The weight and magnetic properties of rare-earth metals have made them important for wind turbines, essential to hybrid cars, and indispensable if the world ever hopes to covert to fully electric vehicles..." ("Rare earth oxides go into these super magnets that are a key part of these hybrid and electric cars," notes metals analyst John Kaiser.)


Part of the motivation is to enable China to diversify out of the dollar and into industrial commodities.

China is "definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.  Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can: "China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of  reserves. They get ten times the impact, and can cover their infrastructure for 50 years."


And part of the motivation is China's unquenchable thirst for oil ...


... and natural gas ...

ASHGABAT, Turkmenistan—China signed a 30-year deal to increase purchases of natural gas from Turkmenistan by 30 percent, state media reported Thursday -- a landmark agreement for Beijing as it competes with Moscow for access to Central Asia's energy wealth.


... and gold ... China "funded a second strategic petroleum reserve and they plan to buy $80 billion worth of gold. That's two Fort Knox's. Both of those investments only make sense if you expect significant dollar inflation."


... and global assets ...

"Beijing is trying to use its treasure trove of U.S. debt, its holdings of some $2 trillion in currency reserves, mostly in dollars, to go bargain-hunting for assets in the worldwide credit crunch and recession. ... Chinese oil and mining companies, all either directly or indirectly government-owned, already have made $23.2 billion in overseas acquisitions this year."

Here is one of the few things the Bush-Cheney Administration did right, Containing China?, which I am sure the Obama Administration will religiously follow ...

[Coopmv]

It will be interesting to see what impact this bill will have on Chinese imports to the US.  The insourcing of jobs (back to the US), if it becomes a trend, will no doubt have an impact on both China and India ...

Analysis: Climate bill may spur energy revolution
Analysis: Climate bill would spur US energy revolution, affecting every aspect of daily life

By H. Josef Hebert, Associated Press Writer
On Saturday June 27, 2009, 7:41 pm EDT

WASHINGTON (AP) -- Congress has taken its first step toward an energy revolution, with the prospect of profound change for every household, business, industry and farm in the decades ahead.

It was late Friday when the House passed legislation that would, for the first time, require limits on pollution blamed for global warming -- mainly carbon dioxide from burning fossil fuels. Now the Senate has the chance to change the way Americans produce and use energy.

What would the country look like a decade from now if the House-passed bill -- or, more likely, a water-down version -- were to become the law of the land?

"It will open the door to a clean energy economy and a better future for America," President Barack Obama said Saturday.

But what does that mean to the average person?

Energy touches every corner of the economy and in countless ways can alter people's lives.

Such a law would impact how much people pay to heat, cool and light their homes (it would cost more); what automobiles they buy and drive (smaller, fuel efficient and hybrid electric); and where they will work (more "green" jobs, meaning more environmentally friendly ones).

Critics of the House bill brand it a "jobs killer." Yet it would seem more likely to shift jobs. Old, energy-intensive industries and businesses might scale back or disappear. Those green jobs would emerge, propelled by the push for nonpolluting energy sources.

That could mean making or installing solar panels, repairing wind turbines, producing energy-efficient light bulbs, working for an environmental engineering firm or waste recycler, making equipment that harnesses carbon from coal burning and churning out energy-saving washing machines or air conditioners.

Assembly line workers at factories that made gas-guzzling cars might see their future in producing the next generation of batteries or wind turbine blades -- an emerging shift, though on a relatively small scale today. On Wall Street, commodity brokers would trade carbon pollution credits alongside oil futures.

Farmers would see the cost of fertilizer and electricity go up. More windmills would dot their pastures. And a new source of income could come from selling pollution credits by planting trees or changing farming methods to absorb more carbon dioxide.

Energy would cost more because it would become more expensive to produce. For the first time there would be a price on the greenhouse gas pollution created when coal, natural gas or oil are burned. Energy companies would have to pay for technologies that can capture the carbon emissions, purchase pollution allowances or shift to cleaner energy sources.

It all costs.

Investors would see a new line item on companies financial reports: the cost of carbon permits.

Some increases would be reflected in the prices of goods and services, economics say. It might mean shelling out more for a toy because plastic, a petroleum based product, is more expensive, or paying more for a house because of new efficiency requirements.

Not all the higher energy cost would show up in people's utility bills. Households, as well as business and factories -- including those, for example, making plastic for toys -- could use less energy, or at least use it more efficiently. The poorest of homes could get a government check as a rebate for high energy costs. That money would come from selling pollution allowances for industry.

Energy experts in government and industry say a price on carbon pollution would lead to new ways to make renewable energy less expensive, while emphasizing how people can use it more wisely.

Potential changes to how homes are built and even financed seem likely as energy efficiency is taken into account in building codes and the cost of mortgages. With the cost of energy increasing, homeowners and businesses would have greater incentive to use more energy efficient lighting, windows and insulation.

But don't think that the traditional sources of energy would disappear.

Coal, which today accounts for half the electricity produced, would continue as a major energy source, though a less polluting one, energy experts forecast. That would mean capturing the carbon released when coal is burned.

It's a technological hurdle with a complication: "not in my back yard" complaints over what to do with the billions of tons of carbon dioxide captured from power plants and pumped beneath the earth. Would people feel comfortable having it stored near or under their homes, factories and businesses?

Scientists studying climate change say carbon capture from power plants is essential if the country is to take up the challenge against global warming.

The cleaner energy economy also put nuclear energy front and center. Does the U.S. build new power plants? If so, where, and where does all the waste go? Nuclear energy makes up about one-fifth of the nation's electricity today.

The House-passed bill contains provisions to make it easier to get loan guarantees and expands the nuclear industry's access to loans for reactor construction. An Environmental Protection Agency analysis that shows modest future costs from a low-climate energy world assumes a significant expansion of nuclear energy. The Senate could add more incentives for the nuclear industry.

The new energy world would rely more on natural gas. This abundant fossil fuel emits carbon but is relatively clean when compared with coal. But people would have to decide whether to accept new pipelines that are needed to ship the gas around the country -- just as they would have to deal with the need for new power lines to move solar and wind energy to where it's needed.

[Lethevich]

Critics of the House bill brand it a "jobs killer."

I've noticed this 'opposition on ground of job losses' thing being used by Republican politicians quite often - what happened to the tough-love Darwinian economy that they theoretically support? Or perhaps it is fishing for public support...

[Coopmv]

I've noticed this 'opposition on ground of job losses' thing being used by Republican politicians quite often - what happened to the tough-love Darwinian economy that they theoretically support? Or perhaps it is fishing for public support...

They said the same thing back in the late 70's when the first CAFE (fuel economy) standard was imposed and were proven wrong.  They and many Democrats from the auto-heavy states jumped on the bandwagon of the Detroit Three to resist any further raises in the fuel standard since that would kill the truck/SUV sales.  Had that needed action been taken, GM would not have filed for bankruptcy this month.  The same group also oversold the benefits of financial deregulation back in the late 90's when they pushed for wholesale dereguation in the financial industry.  We have all witnessed what this over-dereg has done to the world economy. 

[BachQ]

They said the same thing back in the late 70's when the first CAFE (fuel economy) standard was imposed and were proven wrong.  They and many Democrats from the auto-heavy states jumped on the bandwagon of the Detroit Three to resist any further raises in the fuel standard since that would kill the truck/SUV sales.  Had that needed action been taken, GM would not have filed for bankruptcy this month.  The same group also oversold the benefits of financial deregulation back in the late 90's when they pushed for wholesale dereguation in the financial industry.  We have all witnessed what this over-dereg has done to the world economy.  

Yeah, Coop ... predictably, John Dingell from Detroit is fighting against this legislation.


Cap and Trade Is A Tax and It's a Great Big One - John Dingell (D-MI)
by heritage.org
Fact Sheet #27


Cap and Trade Top Ten List

---     Cap and Trade Is a Massive Energy Tax.
---     It Will Not Make A Substantive Impact on the Environment.
---     It Will Kill Jobs.
---     It Will Cause Electricity Bills and Gas Prices to Sharply Increase
---     It Will Outsource Manufacturing Jobs and Hurt Free Trade
---     It Will Make You Choose Between Energy, Groceries, Clothing, and Haircuts
---     It Will Be Highly Susceptible to Fraud and Corruption
---     It Will Hurt Senior Citizens, the Poor, and the Unemployed the Worst.
---     It Will Cost American Families Over $3,000 a Year.
---     President Obama Admitted "Electricity Rates Would Necessarily Skyrocket" under a cap-and-trade program (January 2008)

http://www.heritage.org/Press/FactSheet/fs0027.cfm