REVISION: Currency pegs

http://www.bloombergview.com/quicktake/currency-pegs

REVISION: Currencies, trade & policy:

Really good context on the "currency wars" I often mention:


http://www.bloombergview.com/quicktake/currency-wars

Some key context for different macro concepts:

Innovation, R&D and growth (in the future):


Rolls Royce developing hybrid technology for trains




Nice, up to date analysis of Germany's trade surplus:


Germany's trade surplus is a bigger problem than Greece




China & growth (or not); it eased again today, but this looks at recent experience:


China preps QE-lite




The dollar and other exchange rates - excellent article about the "games" being played as countries try to gain an export advantage via weak currencies:


The dollar joins the currency wars




What about trade agreements? This article looks at the benefits, and stumbling blocks, of the TPP for Pacific rim Latam:


Will the TPP help Latin America?




Last on this list is an article on the ECB's role in the Greek crisis; this harks back to the Royal Academy lecture given by Willem Buiter, which promoted the idea that central banks now hold the balance of power. Have a look at this video on the impact of a Greek exit (looming ever closer), then skim-read the article to get a sense of the role of CBs in a modern economy:


Who is the real villain in the Greek drama?

ONS explains the current account of BoP - video

Imports are good! AS & A2 to read

About time you got some serious detail into your balance of payments essays. This article from HSBC points out which sectors import components and then add value before exporting them. Very important for exam questions on trade & balance of payments (essential):

https://globalconnections.hsbc.com/united-kingdom/en/articles/imports-driving-uk-growth?

US economy revs up - or does it?

Only read this if you want to question the data we are fed;the headline figure for US GDP growth is startling (and accepted in  the mainstream). Dig below the surface and things are less rosy:

If you are unable to view this email, please read it online. December 30, 2014 -- Q3 GDP Jumps 5%; Ha! The Crap Behind the Numbers I was raised on a farm and I’ve shoveled more than my share of manure. I didn’t like manure back then, and I like the brand of manure that comes out of Washington, DC, and Wall Street even less. A stinky pile of economic manure came out of Washington, DC, last week and instead of the economic nirvana that it was touted to be, it was a smokescreen of half-truths and financial prestidigitation. According to the newest version of the Bureau of Economic Analysis (BEA), the US economy is smoking hot. The BEA reported that GDP grew at an astonishing 5.0% annualized rate in the third quarter. 5% is BIG number. The New York Times couldn’t gush enough, given a rare chance to give President Obama an economic pat on the back. “The American economy grew last quarter at its fastest rate in over a decade, providing the strongest evidence to date that the recovery is finally gaining sustained power more than five years after it began.” Moreover, this is the second revision to the third quarter GDP—1.1 percentage points higher than the first revision—and the strongest rate since the third quarter of 2003. However, that 5% growth rate isn’t as impressive if you peek below the headline number. Fun with Numbers #1: The biggest improvement was in the Net Exports category, which increased by 112 basis points. How did they manage that?  There was a downturn in Imports. Fun with Numbers #2: Of the 5% GDP growth, 0.80% was from government spending, most of which was on national defense. I’m a big believer in a strong national defense, but building bombs, tanks, and jet fighters is not as productive to our economy as bridges, roads, and schools. Fun with Numbers #3: Almost half of the gain came from Personal Consumption Expenditures (PCE) and deserves extra scrutiny. Of that 221 bps of PCE spending: Services spending accounts for 115 bps. Of that 115, 15 bps was from nonprofits such as religious groups and charities. The other 100 bps was for household spending on “services.”   Of that 100 bps, the two largest categories were Healthcare spending (52 bps) and Financial Services/Insurance (35 bps). The end result is that 85% of the contribution to GDP from Household Spending on Services came from healthcare and insurance! In short… those are code words for Obamacare! While the experts on Pennsylvania Avenue and Wall Street were overjoyed, I see just another pile of white-collar manure and nothing to shout about. Fun with Numbers #4: Lastly, the spending on Goods—the backbone of a health, growing economy—declined by 27 bps. In a related news, the November durable goods report showed a -0.7% drop in spending, quite the opposite of the positive number that Wall Street was expecting. Of course, Wall Street doesn’t want little things like facts to get in the way of their year-end bonus. As we close out 2014, the stock market marched higher and ignored things like: The reaction of the bond market to the 5% number. Bonds should have softened in the face of such strong economic numbers, but the “adults” (the bond traders) on Wall Street saw the same manure that I did.   If the economy was as healthy as the BEA wants us to believe, the “patience” and “considerable time” promise of the FOMC should soon be broken… right? I spend most of the year in Asia, including China, and I am seeing the same level of numbers massaging by our government as China’s. In China, the government leaders establish statistical goals and the government bean counters find creative ways to tweak the data to achieve those goals. Zero interest rates. 24/7 central bank printing. See-no-evil analysts. Financial smoke and mirrors. That’s the financially dangerous world we live in, and I hope that you have some type of strategy in place to deal with the bursting of what’s becoming a very big, debt-fueled bubble. Tony Sagami 30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here. Share this newsletter     http://www.mauldineconomics.com/members Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use. 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Free trade agreements

 asia.nikkei.com article - follow the link for more on free trade deals 

Vietnam-EU deal faces major obstacles

ROBERTO TOFANI, Contributing writer, asia.nikkei.com

ROME -- Vietnam Prime Minister Nguyen Tan Dung is hoping to sign a free trade agreement with the European Union before the end of his term in 2016 but that's looking a little optimistic.
     An FTA would bring substantial benefits. The EU is already Vietnam's second-largest trading partner after China but the trade deal could still boost the country's exports by 20%, according to the Konrad-Adenauer-Stiftung, a German political think tank. Europe would also get better access to Vietnam's market for selling its high-tech products. That might help to shrink its growing trade deficit with Vietnam, which grew steadily from 2.74 billion euros ($3.28 billion) in 2003 to 15.5 billion euros in 2013.
     Still, the two sides are unlikely to reach an agreement until Vietnam makes marked improvements in public procurement processes, intellectual property protection and state-owned enterprise reform, say those familiar with the negotiations.
     "From a European perspective, it is important for Vietnam to respect the exclusive rights to use Geographical Indications (GIs)," said Claudio Dordi, team leader of the EU's trade and investment support program for Vietnam. GIs is the name or sign used to show where goods, especially farm products, have originated. 
Trademark conflicts
The problem lies in the fact that Vietnam is also negotiating with the U.S. over the Trans-Pacific Partnership multilateral trade deal and Washington wants all signatories to adhere to its own trademark system that could conflict with European GIs. For example, the Europeans insist that only cheese produced in a certain part of Italy can be called Parmesan cheese, but in the U.S., Parmesan is considered a generic term for certain hard cheeses. The same problem exists for Parma ham. An American prosciutto maker operates under the registered name of Parma Brand even though it is based in Pittsburgh, not Parma.
     Vietnam will need to manage this kind of conflict between a U.S. trademark for "Parmesan cheese" and Europe's protected designation of the origin of "Parmesan cheese," said Dordi. Other countries in Asia face similar problems and there is no easy solution unless the EU and the U.S. agree to a compromise between themselves, he said.
     Another problem, at least from Vietnam's point of view, is that its inefficient SOEs will be hard-pressed to compete with European competitors if they open up service sectors such as ports, logistics and communications. Ludo Cuyvers, director of the Center for Asean Studies at the University of Antwerp, said Vietnam SOEs are already under pressure to reform as they will have to compete with regional rivals when the Asean Economic Community, due to come into effect at the end of 2015, opens up Vietnam's market to its neighbors. To open the gate to more competition from the west may be too much for the SOEs to cope.

  There's also the problem of non-tariff barriers that the Europeans are unwilling to drop. Vietnam considers the EU's rigid health, safety and environmental requirements as the greatest impediment to its exports. Some Vietnamese food exports have regularly been found to violate EU hygiene requirements and in October, the Vietnamese ministry of agriculture chose to suspend the export of certain types of vegetables to Europe after banned bacteria were found on samples. The EU also has discretionary power to ban the import of products that have violated the rules five times in a year.

     There has been some progress with the FTA negotiations. At the end of November, Vietnam's National Assembly passed the amended Enterprise Law and Investment Law, which are intended to provide more favorable conditions for foreign investment in Vietnam. Vietnam has also indicated it is ready to drop import duties on European products such as alcoholic beverages, according to an EU internal report that was written last March and seen by the Nikkei Asian Review.
Less emphasis on China
Politically, the Vietnamese government is keen to diversify its imports and buy less from China, with which it has maritime and territorial disputes in the South China Sea. In fact, Vietnam is courting stronger diplomatic support from the EU to back its claims against China. The prime minister raised the issue during his European tour in mid-October, when he also met European Commission President Jose Manuel Barroso for talks on the FTA.
     Vietnam has a growing trade deficit with China. The latest figures from the Vietnamese statistics office shows Vietnam imported $39.9 billion worth of goods and services from China from January to November, up 18.9% year-on-year. That left Vietnam with a trade deficit of $26.4 billion, 22.1% more than the previous year.
     As a result, Vietnam has been keen to negotiate FTA agreements with other countries in the region. One was sealed with South Korea on December 10.
     The 11th round of FTA talks will take place this month in Vietnam and there is another round scheduled for early March in Brussels. If real progress is made at these talks, Prime Minister Nguyen may still see his dream come true, but there is certainly a lot more work to be done.  

Resources for Balance of Payments

Balance of Payments

Follow-on material

Investopedia BoP video
https://www.youtube.com/watch?v=YlQgeyKV-QM

ONS UK current account video
https://www.youtube.com/watch?feature=player_detailpage&v=cbJIVmsKOZU

T2U BoP overview
http://www.tutor2u.net/economics/revision-notes/a2-macro-balance-of-payments-introduction.html

EOL BoP theory notes
http://www.economicsonline.co.uk/Global_economics/The_balance_of_payments.html

T2U BoP managing deficits
http://www.tutor2u.net/economics/revision-notes/a2-macro-balance-of-payments-deficits.html

For BoP in the news check out the F585 and IB International Scoop It boards.

http://www.scoop.it/t/f585-the-global-economy-by-adam-dean
http://www.scoop.it/t/ib-international-economics

Resources for International Trade

International Trade

Review the following....

T2U international trade presentation
http://www.slideshare.net/tutor2u/international-trade-25962434

T2U protectionism presentation
http://www.slideshare.net/tutor2u/protectionism-26223566

Learn Liberty videos
http://www.youtube.com/watch?v=y0gGyeA-8C4
http://www.youtube.com/watch?v=7yOHjRThM_o
http://www.youtube.com/watch?v=qdcQLWGaJoM

something to mull on BoP

The impact of a $ bull market - John Mauldin

As promised, a link to the article that covered the impact of a $ bull market in depth - before anyone really noticed the rising $. This change is an undercurrent of huge significance for the global economy; it will unfold as we approach the exam. If some of the content is inaccessible, ask me. Most of it is very clear and accessible.

A Scary Story for Emerging Markets

Resources for Exchange Rates

Exchange Rates

Follow-on material for the lessons on exchange rates:

Tutor2u theory notes
http://www.tutor2u.net/economics/revision-notes/a2-macro-exchange-rate.html

mjmfoodie video
http://www.youtube.com/watch?v=xwtgByffoUw

EOL theory notes
http://www.economicsonline.co.uk/Global_economics/Exchange_rates.html

For applied examples please peruse the IB International Economics Scoop It board.
http://www.scoop.it/t/ib-international-economics