August 2012 International Economic Fundamentals

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     News articles for August 2012.
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    Eurozone crisis heads for September crunch

    BRUSSELS — Over the past couple of years, Europe has muddled through a long series of crunch moments in its debt crisis, but this September is shaping up as a “make-or-break” month as policymakers run desperately short of options to save the common currency.


    Crisis or no crisis, many European policymakers will take their summer holidays in August. When they return, a number of crucial events, decisions and deadlines will be waiting.


    “September will undoubtedly be the crunch time,” one senior eurozone policymaker said.



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    The Euro banking crisis is slamming the global economy


    Citi
    economist William Lee is out with an evaluation of how the global economy has changed in the past few years. If there's one thing he's learned from the financial crisis, it's that nothing is as safe as it looks in an increasingly interconnected world. 


    From the note:

    "Powerful global forces have heightened uncertainty, raised the riskiness of almost  all asset classes, and exposed vulnerabilities in sovereign fiscal positions as well as in banks and financial markets. We can no longer use the terms “perfectly safe” or “absolutely riskless” to describe assets, countries, or political/social institutions.


    Here's an illustrative example, the global impact of a full on European credit crisis, which he describes as one of the principal sources of global risk. It would be very bad indeed, slamming output by as much as 3 percent for the world's biggest economies.



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    Expert explains in detail how the next shock will shatter the global economy


    The eurozone is on a path into a deep recession. As one of the largest and most advanced economies in the world, its centrality to a system of highly-interconnected global supply chains is taken for granted.

     


    David Korowicz, a physicist and human-systems ecologist, recently authored a lengthy 78-page white paper titled: "Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse."



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    Potential grows for food as prices surge

    (Reuters) - The world could face a food crisis of the kind seen in 2007/08 if countries restrict exports on concerns about a drought-fuelled grain price rally, the U.N.'s food agency warned on Thursday, after reporting a surge in global food prices in July.


    A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.


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    Recession looms for Europe's powerhouse

    BERLIN — Three years into the eurozone debt crisis, the gravity-defying German economy has stalled and some fear it could fall into recession in the second half of this year.


    Over the past week, Europe’s largest economy has been hit by a series of increasingly gloomy data releases, showing declines in manufacturing orders, industrial output, imports and exports.



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    U.S. should change biofuel policy to avoid food crisis: UN

    The U.N.’s food agency stepped up the pressure on the United States on Friday to change its biofuel policies because of the danger of a world food crisis, arguing the importance of growing crops for food over their use for fuel.


    Global alarm over the potential for a food crisis of the kind seen in 2007/08 has escalated as drought in the U.S. midwest has sent grain prices to record highs, fuelling a 6 percent surge in the UN Food and Agriculture Organisation’s July food price index.


    The FAO’s Director-General Jose Graziano Da Silva wrote in the Financial Times on Friday that competition for a U.S. corn crop that has been ravaged by the worst drought in 56 years was only going to intensify.



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    Shrivelled U.S. corn crop heralds supply squeeze drama

    U.S. corn and soybean crops have been slashed even more than expected by the worst drought in half a century and will fail to replenish ultra-low stockpiles, a U.S. government report showed on Friday, raising fears of a new world food crisis.


    Corn prices briefly surged to a record on the U.S. Department of Agriculture forecast but then retreated because the government said demand for the grain would fall due to its soaring cost.



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    Mexico 4, Brazil 2

    CONGRATULATIONS are due to Mexico, which on August 11th won its first gold medal in the London Olympics, beating Brazil in the men's football final. After 93 frantic minutes, the final score was 2-1 to Mexico. Mass celebrations followed in Mexico City.


    This blog’s headline isn't a misprint, but a reference to the score in a longer-term competition: economic growth. In recent years Brazil has outplayed Mexico, growing at 6% or more as Mexico bumped along in the slow lane. But lately that has changed. Last year Mexico grew by 4% and Brazil by 2.7%. This year Mexico is expected to get close to 4% again, whereas some economists reckon that Brazil's rate could dip below 2%. A recent report by Nomura predicted that Mexico’s economy, currently half the size of Brazil’s, could end up the bigger of the two within the next decade.



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    Drought worsens, global food prices will go up

    Food prices are expected to surge worldwide as part of a cascade of ill effects from the intense drought in the United States. On the Chicago Board of Trade on Friday, corn rose to an all-time high following the release of a report by the U.S. Department of Agriculture that cut its estimate of U.S. corn production by 17 percent—roughly a sixth of the entire corp, gone since early July. The price of corn, as well as soybeans, had already risen in anticipation of the woeful report, but also dropped a little on Friday after reaching all-time highs.


    “Based on conditions as of August 1, yields are expected to average 123.4 bushels per acre, down 23.8 bushels from 2011,” the Agriculture report noted. “If realized, this will be the lowest average yield since 1995. Soybean production is forecast at 2.69 billion bushels, down 12 percent from last year. If realized, the average yield will be the lowest since 2003.”



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    Euro-Area economic output contracted on Spain

    The euro-area economy shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions.



    Gross domestic product
    in the 17-nation currency bloc fell 0.2 percent from the first quarter, when it stagnated, the European Union’s statistics office in Luxembourg said today. That’s in line with the median estimate of 35 economists in a Bloomberg survey. The contraction was softened by stronger-than- forecast growth in Germany, the region’s largest economy.



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    1 graph to put Europe into perspective


    Come on, Europe! Can't you just fix yourself already? So say the Americans, but while the U.S. is now seeing rising housing prices in some areas (knock on wood), the bottom may have yet to fall out of a few European housing markets. And just like in Japan in 1990 and America in 2008, markets do not perform well when home values collapse. But before all of the specifics, take this chart in



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    Canadian pension funds cautious on Brazilian infrastructure plan

    Canadian pension funds could be big beneficiaries of Brazil’s decision to unleash a $66-billion (U.S.) infrastructure investment strategy, but, for now, they remain somewhat wary.


    Executives at this country’s largest pension funds were caught off guard by Brazillian President Dilma Rousseff’s announcement Wednesday that Brazil will, among other things, sell concessions for 7,500 kilometres of toll roads and hire private firms to build 10,000 kilometres of railroads. Further announcements on potential new shipping port and airport deals are expected soon.



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    Two ways to see China's problems

    CHINA is confronting some serious economic problems, and how Beijing does — or doesn’t — respond to them could bend the course of the global economy.


    First, China’s real estate bubble is deflating. But its economy also seems to be suffering from what we economists call excess capacity — an overinvestment in capital goods, whether in factories, retail stores or infrastructure.


    So what now? The answer depends in part on your school of economic thinking.




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    Countries with the highest tax rates

    Businesses looking to expand their operations internationally have a host of hurdles to overcome. Will their products be able to compete with their foreign competitors? Will language and cultural barriers inhibit sales? Will growth rates take a nose dive? While the prospect of setting up shop in a far flung country is exciting, that excitement can turn to horror when taxes enter the conversation. Not only will the hopeful business operator pay a chunk out of profits, but having to navigate regulatory paperwork to actually pay can take away from the bottom line as well.


    The World Bank's "Doing Business" report aims to shed light on taxes that a medium sized business would have to pay when operating in economies across the globe. In all, 183 economies were reviewed. The report focuses on the number of tax payments a business is required to make, the number of hours per year it takes to handle those taxes, and the overall tax rate that a business has to pay.



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