Posts Tagged ‘US’

Do you know how to succeed globally?

Sunday, May 4th, 2014

Whatever your feelings about the Chinese, you have to give them credit for swiftly becoming a global power. It’s estimated that this year China will overtake the US and become the largest economy in the world. So what made them so successful? Watch this short video about the strategies that worked for them:

If you are already an exporter you will most likely notice that their mode of operating is no different from successful exporters of any other nationality.

But what if you haven’t yet started working outside your own country? The market is irrevocably global. Already successful at home? Then, what’s stopping you from going global? A good product or service can be successful all over the world.

Get the facts and figures

Exporting isn’t rocket science. There is no need to sign up for a seminar or take a course. The main thing is to do business. Once you have a deal you will get most information you need from the customs and tax authorities, your lawyer, bank, accountant and insurance company.

Do you have a global brand?

If not, creating one is the first step. In today’s online world we all google anything new and if Google comes up with information in a language we don’t understand we lose interest. An abundance of companies all over the world fail on the global market because they forget that in other countries nobody knows who they are.  The best way to develop a global brand is to hire someone who has lived, worked/studied and integrated all over the world and knows how to develop a brand. If it’s not created by someone with a global mind, you will get a national brand translated to different languages.

Imagine the difference it would make to do business on a global scale as opposed to national.

Imagine the difference it would make to do business on a global scale as opposed to national.

 

Culture is key

How do they do business in the country you are interested in? Even in Western Europe there are differences between all countries. And when it comes to cultures different from your own, you can make a fatal mistake without knowing it if you don’t adapt. Again, find out from people with the experience is essential.  It’s not for nothing one of the four building blocks for China’s success overseas is culture.

Get customers

You will neither export nor become a global success without customers.

If you are selling services it can successfully be done on social media and e-commerce is another form of export that can be done online.

But frequently there is a need to have meetings with potential customers to come to an agreement.  In the West it normally works to contact companies directly. But in the developing world it’s often essential to have an introduction to get meetings with the people on high levels you need to see in order to do business there.

The key to global success is preparation, adapt to the culture, a global brand that focuses on your strengths and asking for help. Rome wasn’t built in a day and global business development can take time.  You will learn from your mistakes and when you get a breakthrough globally you will find that it was worth waiting for.

Do you agree with the Chinese about the importance of the four building blocks culture, governance, processes and people? Is your brand national or global? Do you export? If so, where? Are you interested in increasing your global presence? Are you skilled in adapting to other cultures? How long did it take you to succeed globally?

Video: World Economic Forum – You Tube

How can foreign businesses succeed in China?

Sunday, October 27th, 2013

Western companies having problems in China is a popular topic in media. But some foreign businesses actually thrive there. Watch this short Stanford video with Gary Locke, U.S. Ambassador to the People’s Republic of China, about how foreign businesses can succeed:

According to Ambassador Locke, “one way is to find a Chinese partner and build your business from the ground up including jointly pursuing R&D”. When the Chinese have a stake in your business they are more likely to support it. That’s how, for instance, IBM Research operate their research centers in China.

Protect intellectual property and trade secrets

Ambassador Locke cautions that having Chinese partners pose challenges as well. His advice is that “you must make sure that you and your Chinese partner will protect and enforce intellectual property and trade secrets”.

Collaborate with the Chinese government

He is of the opinion that foreign companies that work with the Chinese government on corporate social responsibility projects are also better perceived in China than companies only looking to sell their products.

Several companies for instance built substantial good will in China after the 2008 Sichuan earth quake that killed about 70,000 people and left 5 million homeless.

Another successful model, according to the ambassador, is to build an enterprise that relies on an eco system of talent and creativity. If your company isn’t centered on one single piece of technology that can be transferred elsewhere by an employee with ill intent your business can thrive in a Chinese partnership.

Long term committment essential 

What the ambassador says complies with what most analysts agree on i.e.  that foreign companies wanting to do business in China need to show a long-term approach and that they’re in the country to stay.

Would personally like to add that it’s essential for foreigners wanting to do business in China to adapt to the Chinese. Not the other way round. It’s a different culture and there are many differences. For example having to let them smoke even if you hate smoking is important, use business cards, smile, make friends before you do business, avoid being too casual and, maybe above all, always let them save face.

Do you agree with ambassador Locke’s advice to foreign businesses wanting to succeed in China? Is there anything you would like to add? Are you already thriving in China? If so, what’s your experience? Or maybe you tried and failed? In that case, what went wrong? Are you planning to do business in China? Maybe you live and work in China and your advice for succeeding in China is different? If so, we would love to hear your recipe for success. 

Video: Stanfordbusiness – You Tube

Branding for success in our global world!

Wednesday, June 5th, 2013

Everything and everyone is a product. A country, city, company, product, service and a person. And how the market perceives the product determines its value. It’s sounds cynic, I know. But if you want to be valued and sought for on the market you have to on a continuous basis make sure your brand is in demand and sells.

Does Chanel have a higher turnover in the developing world than in the West? Most likely. But since it's a priave company the information is not available.

Does Chanel have a higher turnover in the developing world than in the West? Most likely. But since it’s a private company the information is not available.

Innovating and updating your brand

When a product is a success all of a sudden the brand matures, growth slows and it comes under pressure from competitors. Europe and the US at the moment are good examples. That’s the time to start innovating and spending again if you want to defend your market position. If not, don’t complain if you lose out to your competitors.

Nothing ever stays the same – not even Cornflakes

You may object that some brands, like Cornflakes, or Chanel for that matter, have been around for a long time. But what we buy today is very different from the same product 50 years ago, not least when it comes to packaging and design. If your brand is out of date you will have to make an investment and innovate yourself.  How you want to be perceived depends on what market you are aiming for.

The West needs to get their attraction back

When it comes to countries and continents, Europe and the US have matured and competitors are moving in. But the West seem to take their current status for granted and are not doing enough to defend their market position. What happened to innovation and making their markets more attractive to investors, not to mention more business friendly?

The West is losing out

The market is irrevocably global. That does not mean the concept represent the best of worlds. But the West will continue to lose relative power as a result. It’s ironic isn’t it that thanks to its generosity in exporting the secrets of success, China and other emerging giants are catching up.

Developing nations are not going to cede power to the US and Europe out of gratefulness. So the West needs to face up to reality –  their brand is losing out. It’s time to innovate and make it profitable for businesses again to stop them moving to other parts of the world. If not, the West will gradually trade places with the developing world. 

Photo credit: Panoramas / Foter.com / CC BY-ND

Africa growing faster than Asia?

Sunday, December 2nd, 2012

Sixteen of the fastest growing countries in the world are in Africa. No you didn’t get it wrong. Seven are in South East Asia followed by three in Central Asia. So has Africa’s time finally come and the continent will now forge ahead?

Ethiopia is predicted to grow at least 8% per annum for the next few years. If so, it will be as normal for Eleni Gabre-Madhin, CEO of the Ethiopia Commodity Exchange, to take center stage globally as for her Western and Asian counterparts.

According to the IMF we will see more African countries with massive growth during the next few years. They also forecast that many African economies will outpace Asian countries, even China and India.

The shoe is on the other foot

Angola is now lending money to it’s former colonial master Portugal struggling in the Euro crisis. Not so long ago nobody would have thought such a development possible.

Many of us have worked extensively to further the interests of Africa and hence hope real progress has now started. But somehow can’t help wondering what will go wrong this time because something usually does. Really hope it is correct that Africa as a whole will grow 7% on a yearly basis over the next two decades?

Surging demand for raw materials and foreign investment driving progres

The continents changing fortunes seems to be, at least partly, based on China’s demand for raw materials, higher commodities prices and increased inflow of foreign investment. Africa’s rising middle class have also fuelled growth in domestic demand. There is global interdependence in respect of production and demand. Africa offers producers around the world a vast and growing market that will keep on expanding.

African governments improving

Government is improving in Africa and corruption is less than it used to be. Seems the NEPAD peer review mechanism have made a difference when it comes to implementing true democracy, good corporate governance, transparency and eradicate corruption. Nowhere else in the world has such a process ever taken place and its uniqueness was well illustrated by former President Bush’s remark, “We don’t do that in America”. More and more governments are being responsible and putting money aside to cushion their economies. Know-how is also improving. As a result of statisticians improving their data in Ghana their GDP was revised up by as much as 75%.

Trade not aid

Africa, the poorest continent, according to many analysts, bares the brunt of the continued rigging of trade rules in the WTO. And in order to prosper the continent needs to trade out of poverty, as opposed to relying on aid. According to the UN, just one percent of increase in exports from Africa is worth a staggering five times the amount it receives in aid and debt relief.

Africans recognises their responsibility to wipe out the gap between the continent and the rest of the world. Africa wants to improve its role in the world economy. Its contribution to world trade is hopelessly small. They want to get its house in order, but the rest of the world needs to play its part as well. For example, Africa is told it may not subsidise its agriculture, so the Western world shouldn’t be doing so either, but as we know both the EU and US does. Jean Chretien put it very well when he stated “we must realize that little progress will be made with investments and trade if Africans continue to be refused access to our markets”.

African media has a role to play

Can’t help thinking about what President Chissano told me in 2004. According to him a major obstacle to improving the image of Africa is that the African press, like it’s Western counterparts, focus on scandals to grab headlines. Naturally a free press is essential, but the down side of that is that far too many negative stories come out of Africa, deter foreign investors and hence have a detrimental affect on the progress of the continent. Maybe it would be a good idea for African media to also show case African success stories? That Angola is growing faster than China would be a start.

The world’s new manufacturing centre?

Unfortunately commodity driven growth doesn’t generate enough jobs. However, now with salaries increasing in Asia  Africa could become the new manufacturing centre. Kenya and Uganda have already increased their export sector. To make this reality the WTO need to facilitate market access for products made in Africa on the world market. If not, Africa may continue to be a scar on the the conscience of the West.

There are many obstacles to Africa continuing to progress. Political instability, weak rule of law, corruption, bad infrastructure as well as poor health and education. So without the political will to reform, the current growth rate will be difficult to sustain. However, for outside companies looking for new markets a whole continent almost sounds too good to be true. But that’s what a developing Africa, with a gradually burgeoning middle class and numbers of skilled workers constantly increasing would constitute. A vast and growing market for the world’s manufactured products, intermediate goods and services. Add to that UN figures showing that investments in Africa provide higher rates of return than anywhere else in the world. It has been said for more than a decade that Africa’s time has come. But maybe now with the changed world order due to the recent global crisis, will Africa finally be able to progress? What do you believe? Will Africa now be able to forge ahead or will the gap between Africa and the rest of the world remain as wide as it is?

(Photo copyright World Economic Forum (www.weforum.org)/Photo by Zahur Ramji / Mediapix)

Let’s deprive people smugglers of their income!

Sunday, April 29th, 2012

Criminal syndicates are increasingly turning from smuggling drugs to human cargo, and governments and law-enforcement agencies are, despite huge efforts, not able to do much about it. Watch Angelina Jolie talk about the desperation of refugees that make them turn to people smugglers:

Unfortunately it's not just between Africa and the Arabian peninsula people are being smuggled. And lamentably there is only so much humanitarian organisations can do to alleviate suffering. 

Who benefits apart from the smugglers?

Frequently Africans are then smuggled from the Middle East to Europe at the cost of approximately $10,000 per person. The most popular destinations are Scandinavia and Britain. But once there some immigrants fail to integrate into society because they they really do not want to be in Europe, but because they can't make a living back home they felt they had no choice. Can't help thinking that all this is so unnecessary and the only ones benefiting are some vested interests and the gangsters making money smuggling them. The latter charge hefty fees of $10,000 per person but many migrants still die en route. Or remain in debt to the people smugglers with all that entails. 

So how can we enable poor people to support themselves in their home countries hence depriving people smugglers of their lucrative income? Aid doesn't seem to do the trick, at least not so far. So why should more foreign aid suddenly be able to remedy the current situation?

Trade instead of aid

Am a firm believer of replacing aid with trade by helping developing countries trade themselves out of poverty. And the swiftest and easiest way of doing so would be to enable them to sell their agricultural produce on the international market.

The EU spends almost two fifths of its entire budget (EU budget for 2010 around 139bn Euros) on the Common Agricultural Program, CAP, and even pay European farmers to overproduce. Those products are then dumped at ultra low prises in developing countries, whose farmers are not able to produce at such low costs. Result – poor farmers become even poorer and developing countries even more dependent on imports to feed their population.

Scrap CAP and US farm subsidies

Scrapping CAP as well as US farm subsidies would thus go a long way towards improving the lives of poor people in developing countries and hence reduce people smugglers income. But chances of that happening are slim, unfortunately, since farmers are a strong lobby group in the US and out of 27 EU member countries only four are interested in gradually getting rid of CAP. 

All consumers in the world would benefit from abolition of EU & US agricultural subsidies since agricultural products would suddenly become much cheaper. Less immigrants would would be forced to use the services of people smugglers since more of them would be able to support themselves back home. Less Westerners become farmers anyway, so why don't we press fast forward and make this world a better place for all, apart from people smugglers?

What's the point in depriving developing countries of their ability to trade themselves out of poverty? The only thing Western Agricultural subsidies achieve is preserving a profession that is in decline in the West anyway? Wouldn't it be better to take a more holistic view and find solutions that are beneficial to all, instead of just a few? We also have to improve the global trade regime that has been crafted over the years by the WTO to benefit not only multinationals in the North but also the poor in the South. But abolishing Western agricultural subsidies would make an excellent start.

(Video –  AngelinaJolieUNHCR) 

How many people live in shantytowns?

Monday, April 9th, 2012

Even in the West, inequality and poverty are on the rise. Poverty has, in fact, reached the levels of 1933. Devote 4 minutes to watching Thomas Pogge, professor of Yale University, talking about the current international system that allows a large part of the world's population to live in abject poverty:  

The global economic downturn has been pushing millions of people into poverty, or worse, extreme poverty. Add to that the fact that people all over the world are moving into urban areas to seek their fortune and we have a danger of slums increasing tremendously. 

How do we keep them safe in urban areas?

There hence is a huge need to reduce vulnerability in urban settings. Half the world's people now live in cities, a share that will rise to 70 percent by 2050.  

So what are we going to do to give more people in the world a decent life? If we don't do anything the amount of people living in shantytowns will rise, everywhere. Or call them homeless, if you wish. 

Extreme poverty leads to crime – or worse

Countries with a lot of poverty easily gets trapped in crime or worse, become failed states. And I don't need to tell you how easily failed states can follow in the steps of Afghanistan and Somalia, do I? So it's in the interest of all of us to start eradicating poverty in the world. 

And let's not forget poverty in the developed world

Frankly find it unbelievable that child poverty is on the increase even in a country like Sweden. So is poverty in all age groups, for that matter. And the same applies to Europe as a whole and the United States. Like South Koreans a decade ago, people are starting to committ suicide in Europe due to being wiped out financially. Isn't it, like Thomas Pogge put it, a crime against humanity? 

Isn't it time to put Milton Friedmans theories on the shelf and, again, start implementing what Keynes ordered? Or do we really want a world where poverty is increasing and the middle classes are in decline? By now we know the side effects of Friedman's ideas as mentioned in do you concur with Joseph Stiglitz on market fundamentalism? Just look at what has happened the last few decades in Latin America, Africa, Asia and Russia. And since 2007 the American middle class has been severely affected by the same side effects of his policies. The Euro zone is currently being hit which has an impact on Europe as a whole. China has been spared to some extent since it implemented Friedman's ideas but never completely opened up their markets. And Iraq failed miserably because the shock theraphies implemented there went too far.

Negative for much of the world's population

One hundred faculty members at University of Chicago wrote a letter of protest when university president Robert ZImmer announced the creation of a $200m Milton Friedman Institute stating that "The effects of the neoliberal global order … strongly buttressed by the Chicago School of Economics, have by no means been unequivocally positive. Many would argue that they have been negative for much of the world's population." Since the time when Reagan was president the Chicago boys have dominated not only Washington but the world, not least through the IMF. So now when the recession keeps on causing substantial increases in misery isn't it time to stop implementing policies that favour multinational companies at the expense of the majority of people in the world?

Do you agree with Pogge that many of the people who support the current international system are like passive Germans during the Nazi era? Do we really want the world's middle classes and poor to be worse off? Is it really a good idea to have more people across the globe living in shantytowns? Or being homeless? No wonder Occupy Wall Street swiftly spread to 1,500 cities all over the world. Is it the beginning of a new era where 99% of the world's population say enough is enough and demand to get a share of what now goes to the top one percent? Is equality only justified if it benefits all human beings? What's your opinion? Is it time to put market fundamentalism aside and start stimulating economies in order to grow again and give more people a decent life? The Euro zone would make a good start.  Or are you of the opinion that Friedman's version of capitalism is the way forward?

(Video: carnegiecouncil – You Tube)

How can Iraq be rebuilt when the money is stolen?

Sunday, December 11th, 2011

We have all heard about how officials and companies are making the money assigned to rebuild Iraq disappear. But did you know that recently there’s also been a record number of US soldiers convicted of such theft and bribery? Devote 2 minutes to watching Gayane Chichakyan reporting:

Isn’t it interesting how little coverage the issue of the missing billions have had in the media? The US military promised they would help rebuild war torn Iraq. Sure, there has been some aid, but unfortunately war contractors are getting away with billions of dollars in profits. In some parts of Iraq there is still no running water,even though someone has been paid to arrange that.

War profiteers steal billions

What amazes me even more is that many war time contractors have been given money to build hospitals that never opened and jails that will never hold any prisoners. On top of it these contractors that have stolen billions from US tax payers have complete impunity from the justice system. Congress has cut the funding to these contractors, but their report will be sealed until 2031. For more in-debth coverage of the problem  watch this interesting video:

Only going after petty thiefs

Isn’t it amazing that soldiers stealing a few thousand dollars are taken to court while US contractors pocketing billions have immunity? Makes you wonder what the US congress is doing, doesn’t it? Can’t help wondering if they will honour their promise to rebuild Iraq? It’s worth remembering that Iraq is still paying Kuwait for the damage they caused when they invaded.

If it wasn’t so critical to rebuild Iraq we could just say that we were not surprised. But the UNHCR  is concerned about almost 2 million people inside Iraq and about 3,4 million originating from Iraq. In other words more than five million people are yet to be able return home to a safe and sound environment. Many of them live in deplorable conditions in camps and it’s actually these people’s lives the people stealing the funds are ruining.

So how can Iraq be rebuilt? Not only are corrupt officials bagging the money but contractors and US soldiers as well. The longer we wait the more problematic the situation in Iraq will be. It’s already the Wild West and the sooner it’s rebuilt the better for not only Iraq but the world. We don’t need another failed state. One solution would be for Saudi Arabia and the Gulf states to coordinate an effort. But that’s unlikely considering the role Iran is playing in Iraq. Is it likely that Iran will rebuild it? Or does it serve their interest to keep Iraq the way it is? Maybe The Arab League could be in charge of rebuilding it? After what happened to the UN in the country, is it likely the United Nations would be prepared to coordinate the effort? Or should the US take its responsibility and find new funds to rebuild the country? What’s your opinion? And how can we assure that money allocated will be used to rebuild Iraq and not end up in someone’s pocket?

Videos: RT America – YouTube

Is China today doing what the US did yesterday?

Sunday, August 14th, 2011

When democracies lose economic power democracy itself is weakened.

global economy, world economy, global chess board, China, United States, Europe, anti-democratic rhetoric, Wen Jiabao,

Hu Jintao may be shorter than Obama but China still makes the smartest moves on the geo-political global chess board.

This year China, the world’s largest dictatorship, overtook Japan to become the second largest economy in the world and replaced the United States as the world’s top manufacturing country.

The US on the other hand, as we all know, has a huge budget deficit and its credit rating has been down graded. China is the largest holder of US debt, so no wonder it’s showing its power.

Fiercely Chinese anti democracy rhetoric

Chinese state-owned media openly blasted the US and the failures of the West. Even warning Chinese citizens about the dangers of democracy.

Following the U.S. debt deal, Chinese newspapers provided some of the most biting anti-Western, anti-democratic commentary. For example:

“The West can no longer cover up its problems. The rise of emerging powers is challenging Western dominance. However, the West only tries to deal with these problems by highlighting past achievements. Political reform is unlikely to make any more progress in the U.S. than in other countries — despite the illusion of change that comes as parties rotate with elections … Western countries are losing the authority of their democratic system.”

Contrast that to statements supporting the US dollar coming out of Japan, the second largest holder of US debt.

China buying Europe at bargain prices?

Not only does China hold a lot of America’s debt. Chinese premier, Wen Jiabao, has also thrown the euro zone a vital lifeline and pledged to buy billions of euros of European debt to keep the single currency project alive.

And unless someone else, like Saudi Arabia or India, start buying continued Chinese purchases of U.S. and European government bonds will be essential to maintaining global financial stability.

“Stable Europe vital to China”

When Chinese Premier Wen Jiabao was on a tour of European capitals recently, he stressed that a stable euro zone is vital to China, Europe’s friend.

From Beijing’s perspective, when it comes to Europe, self-interest and altruism actually coincide.

If China were to buy, say, half of all outstanding Greek sovereign debt (for a bargain of around $220 billion), it would not only resolve the euro zone’s problems and add to Chinese prestige but it would contribute to giving Beijing the kind of reserve asset it needs to diversify its holdings out of dollars.

And it’s interesting to note that as a result of U.S. and European actions in financial markets, there is now the possibility that China could buy even sensitive assets from Europe, at bargain prices.

Money makes the world go round

China is today able to do what the US did yesterday i.e. sequence and prioritize policy objectives across a great number of sectors and focus on achieving them, ignoring distractions, and not allowing events or passions to hijack national attention.

China continues to produce and Westerners keep on consuming on borrowed money, not least from China, which is an equation that doesn’t add up. Soviet communism declined because the economy didn’t add up but that’s not the case with China whose economy is capitalistic while the government keeps a firm grip on power and its people. Most likely the majority of Chinese would like democracy, but for China to become a functioning democracy is nevertheless way into the future since their government will crush dissent.

What’s the strategy of the West?

Today America and Europe are suffering from lack of vision and strategy and seem unable to resist the next big battle in Washington or Brussels and the desire to take on yet another complex security challenge (maybe Syria) to distract from the more important geo-strategic challenges of the day.

China stays on track — and the West seems unable to come back

Not only is the Chinese economy performing very well, they are also partly bankrolling the West. And money talks.

The US, Europe and India are the worlds largest democracies and China is the world’s biggest dictatorship. It does matter who has the best performing economy in the world. To ignore that would be a fatal mistake. But for some reason it seems Western politicians are not able to make an effort to stop power slipping away. That the center of the world is moving East has been obvious for a long time, but what surprises me is that the West doesn’t seem to be able to come up with a strategy to stop, or at least delay, it. What’s your opinion? Is China’s geo-strategic policies making them the winner of the geo-political global chess game? Do you believe China is taking over the West? Or will Western politicians get their act together and, again, start start making intelligent moves on the global chess board that work? If not, it will be a set back for democracy.

(Photo: United States Government Services – Flickr)

Investors have lost confidence in politicians – Have you?

Sunday, August 7th, 2011

The recent inability of US politicians to compromise have lead to US credit rating being downgraded. Add to that European politicians’ inadequate response to the debt crisis in the euro zone and it’s understandable markets are in turmoil.

investors, US debt rating, S&P, Moody's, European Union, Obama, China, recession, credit rating agencies

Hopefully politicians all over the world will now get their act together and coordinate efforts to start dealing constructively with the world economy. There is no avoiding sorting out the main problem of excessive sovereign debt. Until that’s done, any relief will be short lived.

Politicians all over the world really need to step up to the plate and do something drastic to reduce the risks to the global economy.

Is another time bomb ticking somewhere in the world?

The global system is now faced with having to adjust to the many implications and uncertainties of the once unthinkable loss of America’s AAA. US treasury bonds are actually rated lower than bonds issued by countries such as Britain, Germany and France.

China, the world’s largest holder of US debt, has condemned the “short-sighted” political wrangling in the US and are of the opinion the world needs a new and stable global reserve currency. Understandable considering the circumstances.

And I can’t help wondering if there is another time bomb waiting to explode somewhere in the world?

Politicians postponing the problems

There are economic solutions to economic problems, but so far politicians have just postponed dealing with the problems. Presumably hoping they will go away? Which, as we all know is unlikely. If anything they will, just like the US debt problem just did, get worse.

Hopefully politicians all over the world will now get their act together and coordinate efforts to start dealing constructively with the world economy. There is no avoiding sorting out the main problem of excessive sovereign debt. Until that’s done, any relief will be short lived.

S&P considering US politicians not able to govern properly

It’s interesting to note that credit rating agencies are still regarded as capable of judging credit worthiness despite their role in the sub prime crisis. Seems a bit like having drunk drivers policing the roads. Not least since their initial calculations were wrong by 2 trillion. But for some reason they are, and Moody’s will review US credit rating end of this month.

S&P are of the opinion that US policy making and political institutions have weakened and that it will have a negative impact of America’s sovereign debt and budget. They are for instance worried that the Bush tax cut will not expire end of 2012 because of Republican opposition to raise revenues.

Americans & Europeans tired of political games

Voters in both the US and Europe are unhappy with their elected leaders’ failures. But voters are part of the problem too. On both sides of the Atlantic voters want debt levels reduced but no raised taxes or cuts in government programs such as pensions and health care.

Understandable since it’s the fault of bankers and politicians rather than voters. But unfortunately all belts now have to be tightened. Otherwise the huge sovereign debts will not be reduced.

Personally I used to think the main reason for the US debt was the wars in Iraq and Afghanistan. But according to The New York Times the main reason is loss of revenue due to the Bush tax cut, followed by the costs of those wars.

Unfortunately US voters will most likely be affected by S&P’s cut of US credit rating since borrowing costs will increase not only for the American government but US companies and consumers as well.

Could the EU rescue both Spain & Italy?

The sovereign debt problems within The European Union may be a ticking time bomb that could freeze credit and undermine banks in Europe, hence spreading chaos throughout the world.

US politicians ignored the signs of crisis ahead of Lehman, and European politicians are now following suit. They have reacted slowly and not enough. Can the present rescue mechanism really handle bailing out large economies like Spain and Italy? Or, heaven forbid, France as well.

Financial markets more to blame

Governments aren’t doing a good job but politicians move slowly because they have to please voters in order to get re-elected. They can’t afford to make the mistakes the financial markets and credit rating agencies made by, for instance, underpinning sub-prime loans in the US and Greek borrowings in Europe.

In my opinion nothing politicians have done before or during the financial crisis since 2007 can match the mistakes made by the financial markets and credit rating agencies.But unfortunately S&P’s decision to downgrade US credit rating could prove to be the trigger for another financial crisis that sends the US and other western economies back into recession. However, that does not change the fact that politicians need to get their act together and deal with the problems facing not only their own country but consequently the world economy. The fact that US politicians recently were unable to do so resulted in their debt rating being down graded.

Why isn’t the EU better run? Why is the US government, as Obama put it, dysfunctional? What’s your opinion? Do you believe it’s time for world leaders to step up to the plate and coordinate actions to make the world economy work better? Or should it be left to the markets and credit rating agencies to run the world economy?

Photo: The United States Government Work – Flickr

Economic crash in China – or again – in the US?

Sunday, June 12th, 2011

Looking at recent predictions about where the Chinese and US economies are heading really echoes the cold war. But the arguments are valid and if either, or both of them, crash it would, as we all know, badly destabilize the entire global economy.

China, US, crash, derivatives, lending, sub-prime, invesors, property price bubble,

Are the presidents of China and America presiding over economies that will crash?

China today – the US in 2007?

More and more investors and analysts recently seem to be focusing on potential problems facing the Chinese economy, and they’re worried, to put it mildly.The reason for their concern sounds like a description of the US in 2007, a destabilizing property price bubble and rising bad loans at its banks. All due to China’s recent recession-busting credit boom and even cautious IMF is warning of the consequences of the Chinese economy over heating.

Stock markets worried

The stock markets actually seem to believe the Chinese economy is in trouble. Experts are worried that Chinese growth during the last two years based on enormous government stimulus and unconstrained lending from banks offer only a shaky foundation for further growth. The Shanghai Composite, have hence steadily declined since late 2009.

Boom and bust?

The Chinese economy used to rely on exports to the US, but that changed with the recent recession. Over-investments and over-building has hence driven it for the last few years.

As a result inflation increased and the Chinese government had to curb lending as well as raising interest rates. The slowing down of such rampant lending could actually crash the economy, or at least slow it down.

The good news however is that there are differences between the current troubles in China and the US bank and sub-prime mess. One is that Chinese home owners are not as heavily mortgaged as the Americans were. And another that the Chinese government sits on a 3,000 billion dollar surplus that can be used to prop up sick banks.

Chinese economist predict the US economy will crash

On the other hand, Chinese economists are predicting the US economy will, again, crash. Maybe as early as this year due to the explosive increase of the use of financial derivatives that took place between 2005 and 2007.

According to their calculations, the derivatives that are coming due this and next year are worth ten times as much as the ones that caused the latest downturn and will deal a catastrophic blow to not only the US but the global economy.

Another problem experts see is the loss of faith in US treasury bonds.

Dire predictions for the world economy with its fast growing developing countries and stagnating Western nations. So who’s right and who’s wrong? Will the Chinese or US economy crash? What’s your opinion? Are we heading for a deep depression? Maybe the most important question is that if the Chinese economy slows down, or worse crash, how prepared is the rest of the world to cope? Important because even a small decline in China’s growth can, unfortunately, cause massive problems all over the world.

Photo: The White House – Flickr