The Saching of Western Civilisation

These graphics are from the backroom boys in the BRIC lab of Goldman Sachs and were used today by Hamish McRae in the Independent to illustrate his prediction that "this recession will hasten the shift to a new world order". Goldman Sachs is credited with predicting the end of western hegemony, snappily wrapping up the new power bloc as BRIC.

True the data does point to the rise of Brazil, Russia, India and China. Beijing will be especially happy that Wall St's finest have pointed out that the Chinese consumer will contribute more to global consumption (and hence world economic recovery) than the American one for the next two years.

Much as I respect Hamish, having worked in the same office as him a decade ago, I think the jury is still out on this one. These countries will all have to face up to some seriously big changes.

The most obvious is the end of the low-inflationary globe. The printing of money by the bucket load is the most obvious pointer to this. Commodity prices such as oil and foodstuffs are all rising. New technological developments in the west, especially around climate change, will not be allowed to be diffused by shifting production to low cost centres. Last the entrenchment of social programmes and the depression-like features of the downturn may see labour rights restored (as perhaps a quid pro quo for public spending cuts) in many western economies. An more inflationary environment looms.

How the new kids on the block, BRIC and others, fare in this new price-rising world will determine their fate.

Further Chinese Study

In China, it's long been said that officials create statistics to create careers. So in today's FT piece on the Middle Kingdom's efforts to "prop up growth" one line caught my eye.

(The spokesman for the National Bureau of Stats) had no explanation for the discrepancy between falling power consumption and rising industrial production but insisted that both figures were accurate and the issue required “further study”.

Time to get back to the books then...

PS Am indebted to The Gold Standard who pulled together this great post which makes the same point and backs it up with data. Cheers.

"Based on the official G.D.P. numbers, China’s growth has slowed in the worldwide recession, but remains very impressive. The electricity data paints a different picture.

Following are the year-over-year increases in its gross domestic product and electricity consumption for first quarter of each year.

2002: Electricity up 9.4%, G.D.P. up 8%
2003: Electricity up 14.7%, G.D.P. up 10.3%
2004: Electricity up 16.7%, G.D.P. up 9.8%
2005: Electricity up 14.3%, G.D.P. up 9.9%
2006: Electricity up 13.4%, G.D.P. up 10.4%
2007: Electricity up 12.4%, G.D.P. up 11.7%
2008: Electricity up 16%, G.D.P. up 10.6%"

Nuff said.

India's Permanent Problem

Peter Preston has had a long love affair with Pakistan, which began in the early 1970s when as a young reporter he covered the break up of the country and its devastating loss against India. Since then things have slowly slid downhill in Pakistan, bolstered briefly by US backing against the Soviets and Zia's uber-Islamism in the 80s.

So the former editor's cri de coeur in today's Guardian for India To Save Pakistan From Itself should not surprise. What does is that PP suggests India flies in to rescue Islamabad from the Frankenstein monsters it created.

It is disappointing to see PP reach for hoary old analysis. He says India's political chiefs on the hustings trail have shown feet of clay and thoughts stuck in a timewarp. To quote the piece

Where - in so much of the hustings talk - is there recognition of the peril that Pakistan's internal implosion might bring? And where is the resolve to stretch out a hand of understanding or positive aid? India's economic advance is new: India's political chieftains, though, are old, and set in their ways. They knew who to blame after Mumbai. They see the Taliban beginning to target Kashmir. They do not trust President Zardari or his army or his spooks. They welcome the announcement by Washington's special envoy, Richard Holbrooke, that India "is the absolutely critical leader in the region" with an enhanced role in Afghanistan, but they leave subcontinental relations frozen as usual. They do not realise they are not absolutely critical in Kabul, but in Islamabad itself.

This I am afraid is out of date by a decade or two. The Indian elections are not dominated by Pakistan because the two countries by mutual consent don't get involved in each others internal machinations. An endorsement by Delhi of a Pakistani politician ends careers in Islamabad. Former president Musharraf's bluster and swagger simply irritated the Delhi elite in March.

India and Pakistan have had hands outstretched for five years, ever since the breakthrough 2004 Islamabad summit. The prime minister of India, a respected economist born in what is now Pakistan, blamed official agencies in Pakistan after Mumbai because of the evidence he had seen. Manmohan Singh is not given to idle conspiracies. The gunfights on the Line of Control have got tougher and harder in recent months. Just before I left eight soldiers from one of India's paramilitary units were killed in a shootout in Jammu. This is a step change for Indian security forces. Hence the paranoia. And who does trust Zardari?

The fact is in the region India and Pakistan remain permanent neighbours. India's leaders have for years been warning anyone who cared to listen about the rise of militant armed jehadism. Delhi knows all about blowback - the LTTE and Sikh Fundamentalism were aided by Delhi until they bite the hand that fed them. Pakistan's army has yet to face up to what they have done in the name of saving their country. Until Rawalpindi Corps stops vetoing normal relations with India (because officers believe in bleeding India until Kashmir becomes theirs), there will be no meaningful talks, no substantive outcomes and no enduring peace.

Spare a dollar, buddy?

Interesting piece by Gillian Tett in the FT. When hedge fund managers talk of moving out of the American money and into gold and the Chinese call for a new neutral reserve currency rather than the US note, there’s no doubt the dollar is heading for choppy waters.

The question is whether it is just a bit of turbulence or a big, epoch-making moment. The US is heading for a seriously big deficit and will stoke inflation to ease the debt burden. This should seen the greenback being dumped. Unless the US cons the world into believing its Ponzi scheme, sorry economy, delivers real assets to back all these new dollars.

Hence the call for a gold standard. As Ms Tett points out that fallen god of finance, Al Greenspan, thought this way in the 1960s.

But the US will not give up the dollar's role so easily. Because the dollar is the world's reserve currency, the US government can outspend any rival. The power to issue money is intimately related to the power of a country. No country, least of all America, will give up power that easily.

Nano

Me as Jeremy Clarkson. Not.

The Dollar Imbalance

Wen Jiaobao is an old-school communist leader with a surprising popular touch. He's a master propagandist and a deft politician - remember him at the train stations exhorting people to weather the snow and ice a year ago? Never had a Chinese leader appeared in front of crowds feeling their pain. He weighs words carefully and his tone carries conviction.

So his expression today of worry over America's attempt to spend its way out of recession should prick the world's ears up.

There's one thing Chinese leaders know better than almost anyone else it's the history of the imperialism. They have a keen appreciation for Britain's fall and decline. It went hand in hand, the history commissars will tell you, with sterling's collapse.

Under the British Empire, the colonies -that is India, Malaysia, Africa etc - all ran a current account
surplus with Britain. They had to because they were meant to be self-sufficient. These surpluses
were sent back to London where they purchased government bonds or Consols. British banks then lent to British companies to go off and invest in the empire.

Overstretch first militarily and then financially saw Britain end up in hock to the United States and voila the Sterling world became Dollarized. The colonies suffered as local industry was stifled and holdings lost their value.

Today prime minister Wen is warning the US not to overspend - fearing that dollar devaluation would affect China's own reserves. China holds a trillion dollars in US treasury bonds so a sliding US currency would hit them hard. Of course crisis offers opportunity; America weakened offers a chance for China to exert itself. But this all comes too soon for Beijing.

It is not that Beijing does not have the ambition to be top dog, it is that China is not ready to assume the mantle of global economic leadership. Hence to maintain stability - and important ensure global demand takes off without crashing down to earth - Wen Jiabao calls for fiscal restraint. By questioning the sums thrown about by team Obama the Chinese politbureaucrats are also signalling that they no longer sees the US treasuries as the safest haven. Beijing aims to put its money elsewhere. It will end its export-driven model of growth. It will end its dependency on Washington. Domestic demand will be prioritized.

Unless Obama perhaps caves in on some vital Chinese interest, Beijing will accelerate its attempts to secure a new, more independent role in global affairs. We are about to live in interesting times, indeed.

The Return of the Mamluk empire

President Obama’s olive branch of talks with a moderate Taliban has furrowed brows in New Delhi. For India there is no good or bad Taliban only extremists bent on creating an Islamic state stretching across the subcontinent. India sees talk of talks with the Taliban as worse than appeasement. Already the media has picked up on the French foreign minister's innocuous comments on having to accept a possible Taliban's victory - if it came through the ballot.

True Obama has promised to raise troop levels in Afghanistan a la the Iraqi surge, but analysts worry in Delhi that this is simply a prelude to a phased withdrawal under the gaze of a US-installed regime.

For New Delhi this opens the way for the worst possible option: a soft Taliban in Kabul backed by Islamabad – which according to defence analyst Ajai Shukla would allow “the Pakistani army to run Afghanistan on its behalf”.

But Shukla undermines this thesis with a pertinent point.

“The unpredictability within Pakistan is multiplied, say Indian officials, by the fragmentation within Pakistan’s radical fringe. During the anti-Soviet jehad in the 1980s and 1990s, Pakistan dealt with just one jehadi leader, Gulbuddin Hekmatyar. In 2005, when negotiating a ceasefire in Waziristan, Pakistan had 17 tribal Shoora (council) chiefs sitting at the table. Now there are dozens of shooras, often with competing demands.”

Pakistan no longer has no single telephone number to call in the badlands along the Durand line. It could create one by boosting a single Islamic group with arms and cash so that it could wipe out its rivals.

But controlling - let alone unifying - the Taliban, who have an expansive ideological agenda distinctive from the Pakistani state, will be no easy task.

The cutting off of Nato supply lines in NWFP, the bombing of Shia mosques in Punjab and the razing to the ground of a police station point to a much bigger problem. One where imperial masters are toppled by former slaves. If this were ever to happen it would be a reprisal of the Mamluk age – when tribal vassals took over empires in South Asia and the Arab world.

The point is that Islamists do not want to be controlled. They want to control. They are authoritarians who will privilege a small percentage of Muslims to rule over all others. From where this Islamic vanguard springs will determine the distinctive vision of society imagined by Islamists in territory they acquire. Given the historical and geographical roots of the resurgent Taliban, India, Afghanistan and Pakistan have much to worry about.