Washington Post: The Bernanke Revolution in the Middle-East?

Monday, February 7, 2011; 8:14 PM

 

DOES BEN S. BERNANKE, the Federal Reserve chairman, deserve the blame – or the credit, depending on your point of view – for Hosni Mubarak‘s plight? Some seem to think so. Last August, Mr. Bernanke announced further Fed asset purchases known colloquially as “quantitative easing II,” or “QEII” for short. The goal was to ease monetary conditions in the United States and fuel growth. But cheaper money lowered the costs and raised the rewards of speculating on food and energy, relative to some other investments. The latest rise in commodity prices began around the time of Mr. Bernanke’s announcement; expensive food triggered unrest first in Tunisia and then in Egypt. Ergo, Mr. Bernanke undermined Mr. Mubarak – or so the argument goes.

Is it a fair accusation? Well, yes and no. QEII does, at the margin, enable commodity inflation, both by incentivizing speculation and by stimulating U.S. growth, which makes demand for food and energy stronger than it would have been otherwise. International commodity prices are set in dollars, so QEII means more dollars chasing the same supply of goods. The Food and Agricultural Organization calls the dollar’s post-September 2010 weakening a “leading factor” in commodity inflation.

Still, Mr. Bernanke was probably right to deny that the Fed is “primarily responsible” for the current price run-up. The spike in wheat prices, which determines the price of bread in Cairo, began before QEII, when drought destroyed Russian crops. Subsequent floods in Australia have destroyed more wheat. As for other foodstuffs and oil, the continuing rapid growth of investment and middle-class consumption in China and India probably explains much recent inflation – just as it will probably drive future price increases in those goods.

This is not to say there’s no U.S. effect. Subsidies and consumption mandates for corn-based ethanol divert scarce crops and cropland – and taxpayer dollars – to a purportedly “green” industry that actually yields very little environmental benefit. Other U.S. policies – such as protectionism for sugar producers and direct payments to cotton farmers – also distort prices. Reforming those misbegotten programs would probably improve global commodity markets more than abolishing QEII, which ends in a few months anyway.

Higher food prices do, indeed, hurt the poor. But the focus should be on alleviating their suffering – not on alleged political effects. Costlier food all by itself is not destabilizing; there are no food riots in democratic India or the Philippines. As Egypt and Tunisia prove, it’s the combination of misery and tyranny that’s combustible.

 

Seeking Alpha: China: Are Labor Shortages Threatening the Most Populous Nation on Earth?

Earlier this year there was a series of articles in several mainstream newspapers and magazines and on a number of blogs that described labor shortages occurring in China. At the time, I missed all these articles — but now I’ve seen the topic pop up on a couple of tech sites that I visit, and I’ve become interested.

Accordingly, this post is not intended to provide a specific piece of investment advice, but is more an exploration of a news item that I thought might be worth looking into, since so many of us are focused on China as the engine of the global economy.

On the DigiTimes website, an article declares that China’s labor shortages are worsening, particularly in the eastern region. Labor shortages are now an annual issue, but the problem has occurred earlier this year and is more severe. The situation is expected to get worse before the Lunar New Year in February. In particular, the authors quote managers of electronics firms involved in manufacturing flat panels and related components.

One of the companies mentioned in the article indicated that orders for November and December are even higher than those in October, which registered record monthly sales, but added that the labor shortages could affect sales in the last two months of 2010. Essentially, they are implying that they cannot accommodate all the business that is available.

The component makers indicated that labor shortages typically worsen as the Lunar New Year approaches and many workers return to their hometowns. Most laborers should return after the holidays, but some will decide to stay home. Though the labor shortages will ease, manufacturers will have to continue to monitor the issue.

Land of migrant workers?

I never realized this, but many Chinese factory workers are actually migrant workers. In China’s case, migrant workers go from the country to work in city factories. In contrast, what we are familiar with in the U.S. is that migrant workers end up in the country working in farmers’ fields.

There are several reasons contributing to labor shortages beyond holiday vacations. The cost of living in factory towns and cities has increased dramatically, while wages have not nearly kept pace with price increases. Many workers feel it is just not worth it to leave their hometowns and families behind in order to work for wages that, after subtracting basic living expenses, leave little left over for savings or discretionary spending. In the meantime, more and more young people are getting college degrees and are unwilling to work in factories for low wages. This further reduces the pool of potential factory workers.

These cost of living issues are foremost among the many important reasons why the Chinese government and central bank are actively taking steps to slow inflation. And factory managers are finding that they need to offer more competitive wages.

Slowing inflation reassures the workers that they will have some money left in their pockets after payday. Increasing wages will help transform China into more of a consuming economy instead of single-mindedly being a manufacturing/exporting economy. Reducing labor shortages allows Chinese manufacturers to avoid turning down orders. If the government is successful in taming inflation and workers get raises, it could be a win-win situation. With respect to the manufacturers, however, it remains to be seen whether increased sales will offset higher wages.

Given the lag in the effects of government actions and the pace at which wage increases are being rolled out, some company managers are increasingly choosing to build new factories in the western, more rural part of China instead of in the crowded, high-cost eastern half. This in turn has its own effects, some of which are actually very good. It reduces the need for workers to live a migratory lifestyle. It makes it worthwhile for China to continue its binge of infrastructure projects, especially in the energy and transportation sectors (which also happen to provide jobs), in order to make the west more friendly to manufacturing and hi-tech. This will spread prosperity more evenly across the country and reduce social tensions between rural/urban and east/west.

If labor shortages persist, I wonder how China will respond. It’s clear that the nation is reluctant to allow anything to impede the manufacturing juggernaut that has resulted in China being called the world’s factory. Will Chinese companies begin to build factories in other countries? Will China invite in foreign guest workers like Germany did? Similarly, if labor costs increase, will China act like the U.S. and send the jobs to the next lower-cost country — like, perhaps, Vietnam?

It’s a complex issue and an important one, now that China has assumed such a significant place in the global economy. It will be interesting to see how China deals with the situation.

Disclosure: No positions.

About the author: Trade Radar Operator

I am a long-time individual investor with an engineering degree and an MBA. I worked in aerospace-defense for 15 years and have spent the last decade or so working for a large financial services firm. This academic, work and investing background helps me cast an informed eye on tech stocks, the… More

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Washington Post: Afghan poll shows falling confidence in U.S. efforts to secure country

By Rajiv Chandrasekaran and Jon Cohen
Washington Post Staff Writers
Monday, December 6, 2010; 6:02 AM

 

Afghans are more pessimistic about the direction of their country, less confident in the ability of the United States and its allies to provide security and more willing to negotiate with the Taliban than they were a year ago, according to a new poll conducted in all of Afghanistan’s 34 provinces.

But residents of two key southern provinces that have been the focus of U.S. military operations over the past year say aspects of their security and living conditions have improved significantly since last December.

The new poll – conducted by The Washington Post, ABC News, the British Broadcasting Corp. and ARD television of Germany – found a particularly notable shift in public opinion in Helmand province, where Marines have been conducting intensive counterinsurgency operations. The number of people in Helmand describing their security as “good” jumped from 14 percent in a December 2009 poll to 67 percent now. Nearly two-thirds of Helmand residents now say Afghanistan is on the right track.

In Helmand and in neighboring Kandahar, the percentage of residents reporting threatening nighttime letters from the Taliban has been sliced in half. Public assessments of the U.S. military efforts in the area have also improved over the year, but 79 percent of people in the two provinces say American and allied troops should start their withdrawal next summer or sooner.

The changes in Helmand and Kandahar bolster claims by senior U.S. military officials, including Gen. David H. Petraeus, the top coalition commander, that the application of greater combat power and civilian assistance is starting to make a difference. But the results also lay bare the challenge that remains in encouraging more Afghans to repudiate the insurgency and cast their lot with the government.

“We clearly have to continue to provide the message to the Afghan people about why we’re here and what it is that we want to do, not just for our own national objectives and coalition objectives but also for the people of this country and for the government of Afghanistan,” Petraeus said Sunday in Kabul in an interview with ABC News about the poll.

Nationwide, more than half of Afghans interviewed said U.S. and NATO forces should begin to leave the country in mid-2011 or earlier. More Afghans than a year ago see the United States as playing a negative role in Afghanistan, and support for President Obama‘s troop surge has faded. A year ago, 61 percent of Afghans supported the deployment of 30,000 additional U.S. troops. In the new poll, 49 percent support the move, with 49 percent opposed.

“We want the Afghan forces to be able to control security so the foreign forces can leave,” said Mohamed Neim Nurzai, 40, a farmer from Farah province who participated in the poll.

After a big drop last year, more than a quarter of Afghans again say attacks against U.S. and other foreign military forces are justifiable.

Overall, nearly three-quarters of Afghans now believe their government should pursue negotiations with the Taliban, with almost two-thirds willing to accept a deal allowing Taliban leaders to hold political office. Nearly a third of adults see the Taliban as more moderate today than they were when they ruled the country.

But the surge of U.S. troops and reconstruction funds in Helmand and Kandahar have improved many residents’ perceptions of their quality of life. In Helmand, 71 percent now rate their living conditions as “good,” up from 44 percent late last year, and 59 percent give positive marks to the availability of jobs, up from just 14 percent. In both southern provinces, public assessments of the availability of clean water and medical care are sharply higher than they were a year ago, running counter to trends elsewhere.

U.S. challenge

Although the findings in Helmand and Kandahar amount to a rare dose of hopefulness after nine years of war, the trends elsewhere illustrate the challenges and risks facing the Obama administration and its NATO allies as they seek to marginalize a resilient and adaptive insurgency. Those are among the issues being examined by the National Security Council in its review of the Afghan war, which will be presented to Obama in the coming days.

Senior U.S. military officials contend that the spread of Taliban activity to previously stable parts of the country does not pose an existential threat to the Afghan government, and they argue that security gains in the south will have a spillover effect elsewhere. But Afghans as a whole do not share that optimism.

For many Afghans, security concerns are rivaled by growing economic worries. Two-thirds view the availability of jobs as a problem, and nearly twice as many see things deteriorating as opposed to getting better.

“Aside from security, we have a lot of problems,” said poll respondent Mohamed Nurzaid of Nimruz province. “Joblessness and the prices at the markets keep going up.”

The U.S. government has spent more than $4 billion over the past year on reconstruction and economic development projects in Afghanistan. Two-thirds of Afghans say at least a good amount of the foreign aid money pouring into the country is being misdirected for personal gain by government officials.

For all the perceived pockets of improvement in Kandahar, 55 percent of respondents there say they have been asked for money or other payment from the police in exchange for favorable treatment, well above the national number of 21 percent. Most Kandahar residents feel their situation would only get worse were they to file a complaint about a public official.

Taliban’s image

Support for the Taliban has jumped in Kandahar, where 45 percent now hold favorable views of the group. The same 45 percent of Kandahar residents see the Taliban as having a strong presence in their area.

But nationwide support for the Taliban remains tepid. Afghans overwhelmingly prefer the current government over the Taliban, and almost three in four continue to say it was good that the U.S. military toppled the Taliban in 2001, although that number is nine points lower than it was a year ago.

Despite the U.S. government’s persistent skepticism of Hamid Karzai’s leadership, more than six in 10 respondents feel the Afghan president is doing an “excellent” or “good” job. Fifty-nine percent of Afghans said they believe their country is headed in the right direction, a drop of 11 percentage points from a year ago.

Another change in the country over the year is a 13-point jump in the number of Afghans who say women’s rights are suffering. While majorities of Afghans continue to support girls’ schools, voting rights for women and their ability to work, 50 percent oppose women going outside their home unaccompanied by a male relative.

The poll is based on in-person interviews with a random national sample of 1,691 Afghan adults, conducted Oct. 29 to Nov. 13 by the Afghan Center for Socio-Economic and Opinion Research in Kabul, a subsidiary of D3 Systems of Vienna. Interviews were administered in Dari and Pashto, the country’s two principal languages. The results have a margin-of-sampling error of plus or minus 3.5 percentage points.

chandrasek@washpost.com cohenj@washpost.com

Staff writer Ernesto Londono and special correspondent Javed Hamdard in Kabul and polling consultant Meredith Chaiken contributed to this report.

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