The world press is largely focused on yesterday's Venezuelan referendum where Hugo Chávez won the right to indefinite re-election. While this is not insignificant for it marks another step in Venezuela's lurch into authoritarianism, the referendum was not the most significant event yesterday in Latin America. Chávez is a throwback to the tradition of the caudillo which apparently in Venezuela, South America's most backward republic until oil rescued the country in the 1930s, remains intact. It is not an accident that the most authoritarian regimes in South America are both members of OPEC. Oil may be a blessing but it also proven a curse for its wealth has been mismanaged by governing elites.
While there are many reasons why a Chávez arose in Venezuela, corruption and the inability of governing elites to tackle social inequality stand atop the list. Chávez prevailed yesterday in part to coercive electoral tactics but it is important to note that he has also delivered to the poor, cutting the poverty rate to 26% at the end of 2008 from 54% in 2003. Among the poor, and not just in Venezuela, Chávez remains quite the hero. For governing elites in Latin America, this lesson has not been lost.
Hugo Chávez in Venezuela, Rafael Correa in Ecuador and Daniel Ortega in Nicaragua form the hard left in Latin America. Evo Morales in Bolivia doesn't really want to be a member of this club but it seems US policy in the region may yet push him in that direction. But the left in Latin America is a rather broad and dynamic enterprise. The fin de siècle may have been lost, but in this new century Latin America's rejection of neo-liberalism has unleashed a vitality in the region.
Japan's GDP Contracts -12.7%
The government of Japan reported its GDP numbers for the 4Q08. Japan's real gross domestic product shrank at an annual rate of 12.7 percent from October to December. This marks the third consecutive quarter of economic contraction in the world's second largest economy. The Japanese economy is facing a declining export sector that had previously kept the economy afloat and it continues to be plagued by lackluster consumer spending and anemic business investment. The downturn is the most severe in Japan since the oil shocks of 1973-74. More from the New York Times.
The numbers are mind numbing. While the Japanese case is not wholly analogous to our own, there are some takeaways. One of the biggest mistakes that Japanese policy makers have made is to prematurely withdraw their fiscal stimulus in vain attempts at budgetary discipline. These fits and starts have simply put decimitated the tax receipts according to Richard Koo, chief economist at Nomura Securities. In this kind of environment, Dr. Koo argues that a "proactive fiscal policy is far more desirable" in sustaining the economy and thus raising tax revenue. If the economy stutters, then tax receipts collapse only aggravating the deficit further. This is sound advice on both sides of the Pacific.
Japanese officials are considering drafting a fresh fiscal stimulus package to stem the downturn before the economy collapses. Prime Minister Taro Aso has promised spending worth almost 50 trillion yen ($545 billion) in two packages.
Polls have closed in Venezuela and the Consejo Nacional Electoral (CNE), the country's election board, has yet to release any official results but based on reports that I am getting from Caracas, Chávez has his Si.
Stunning in his honesty, but Pakistan's President Asif Ali Zadari tells 60 Minutes' correspondent Steve Kroft that various Taliban-affiliated militant groups are present in "huge amounts of land" in Pakistan and his Government is in a battle to survive against the growing threat of the Taliban. Without question, large swaths of the Northwest Tribal Areas are under direct or indirect Taliban control and have been for some time now but President Zardari's clarion call is that the Taliban has made significant inroads into Baluchistan, the Sind, the Malakand and other areas of Pakistan proper.
Pakistan's new president, Asif Ali Zardari, says his nuclear-armed government is in a battle to survive against the growing threat of the Taliban, which his country failed to take strong action against earlier.
Now the Muslim militant group has extended its presence from the tribal borderlands inland to larger cities, Zardari tells 60 Minutes correspondent Steve Kroft in an interview to be broadcast this Sunday, Feb. 15, at 7 p.m. ET/PT.
"[The Taliban] do have a presence in huge amounts of land in our side. Yes, that is the fact," says Zardari. Once confined to the country's border area with Afghanistan, where they carried out strikes against U.S. troops over the border, the Taliban have extended their influence in Pakistan inland to cities like Peshawar and the Swat Valley.
San Francisco Progressive Perspectives presents Senator Bernie Sanders on Tuesday, February 17th at 7:30 PM. Senator Sanders will speak on "Why We Need to Unite around a Progressive Agenda" in conversation with Norman Solomon.
The event will take place at the First Unitarian Univeralist Church located at 1187 Franklin Street at Geary in the Cathedral Hill district of San Francisco. Suggested donation is $10.00.
Please RSVP to ProgressivePersp@aol.com
Also if you are interested there is a fund raiser for Senator Sander's PAC, the Progressive Voters of America PAC. Please contact me for more details on the fund raiser.
What a week it was and it's only the sixth full week of 2009 but don't look now, corporate defaults for 2009 have already reached 25% of the total $157 billion of high-yield-loan and bond defaults in all of last year. As of February 6th, 21 US companies had defaulted on $43.1 billion of high-yield bond and bank debt. But let's add Paul Allen's Charter Communication, the nation's fourth largest cable company, to the list. $8 billion, cha-ching. At the beginning of the week, Muzak Holdings LLC, known for producing background music, and packaging company Pliant Corp. sought Chapter 11 protection. Muzak missed a $105 million payment. Pliant's restructuring plan hopes to eliminate $674 million in high-yield debt. On Thursday, Cleveland-based Aleris International, which produces aluminum products, and the US operations of Midway Games Inc. also ran for Chapter 11 cover. Aleris' liabilities total $3.98 billion but the company secured debtor-in-possession financing that will allow the company to remain operational. As for Midway, it has $281 million in liabilities. In December, the company laid off 25 percent of its work force, or about 180 people even as it negotiated a sale of the company.
According to Moody's, the US is entering a period likely to feature the most corporate-debt defaults, by dollar amount, in history. By various estimates, US companies are poised to default on $450 billion to $500 billion of corporate bonds and bank loans over the next two years. In percentage terms, the credit rating agencies expect defaults on non-investment-grade debt to triple to 15%.
Now connect the dots. The coming default wave is another source of trouble for the global financial system, which already is grappling with hundreds of billions of dollars in defaulted mortgages, credit-card debt, student loans and other consumer debt. Corporate defaults threaten to hurt banks, pension funds and private-equity funds, which in recent years gobbled up high-yield corporate debt and pieces of bank loans. When companies default, it is the shareholders that get wiped out first. Surely, this is common knowledge.
If you bought your honey a sweet box of chocolates today for Valentine's Day, you likely paid a pretty penny. While just about every commodity today is experiencing severe deflationary pressures, the one exception is world cocoa prices which continue to climb. London cocoa prices jumped by 66% last year to reach a 23-year high in December at £1,820 a tonne. New York cocoa prices, which are less dependent on African producers climbed 26% year over year but 53% over two years. The reason for the high prices is the on-going civil war in the Côte d'Ivoire which produces 35% of the world's cocoa. Three years ago, the Côte d'Ivoire accounted for 40%.
Though native to the Caribbean Basin, cocoa is now grown in more than thirty-five countries worldwide. The cultivated area covers between 3.5 and 4.5 million hectares. This area yields an annual production of approximately 2.7 million tons of cocoa beans. The largest producers after the Côte d'Ivoire are Ghana (20% of world production), Indonesia (12%), Cameroon (5%), Nigeria and Brazil (4% each). The world's most highly prized cocoa (cacao criollo) comes from Colombia and Venezuela.
Tonight the curtain falls on Act One of the Obama Presidency with the passage of the $787 billion American Recovery and Reinvestment Act, otherwise known as the fiscal stimulus. I am not quite sure if what we have just witnessed is a comedy of errors or tragedy in the making though I remain hopeful that this was just a modest exposition, an introduction to the ever-changing cast of heroes and villains in our continuing national drama. The President now has a record, a legislative accomplishment even if it is more modest than most of us would have preferred.
This bill, passed with the support of just three Republican Senators despite a full-court press by the President to secure broad bipartisan support, does begin the task of rebuilding the nation by investing in the nation. The bill invests large sums for education, health care, energy, transportation and technology that will create jobs not just in the near-term but over the long haul. And the bill also extends the social safety net that has been badly frayed by the Republican class war on the middle class and on the poor. That the President failed to adequately frame and tout the merits of this bill to the American people is, I hope, a lesson that his team has learned. This bill, as Terence Samuels of the American Prospect observed, should have been called the jobs, jobs, jobs bill.
Another day, another post on the health, if one can call it that, of the nation's banking system. The Geithner Plan, which seems to divest the President of ownership of the plan to save the nation's bank system should it fail, is a day late and several trillion dollars short. Just how insolvent the US Banking system is anybody's guess but Nouriel Roubini of RGE Monitor who has been right so far in his assessment of the crisis finds that "writedowns by US banks have already passed the $1 trillion mark." Put another way that already surpasses the amount of funds first made available in the TARP. Both Goldman Sachs and the IMF are now predicting bank sector lossess of over $2 trillion prompting Mr. Roubini to run his numbers again. He now thinks losses will approach $3.6 trillion. He writes that we are seeing:
rising losses on subprime, near prime and prime mortgages; commercial real estate; credit cards, auto loans, student loans; industrial and commercial loans; corporate bonds; sovereign bonds and state and local government bonds; and massive losses on all of the assets (CDOs, CLOs, ABS, and the entire alphabet of credit derivatives) that had securitized such loans.
It is time to recognize that many banks are insolvent and that the longer we delay cleaning them up the steeper the price tag. Mr. Roubini contends that nationalization is the best alternative.
"Paradoxically nationalization may be a more market-friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and -- most certainly -- even the unsecured creditors in case the bank insolvency hole is too large; it provides a fair upside to the taxpayer."
`The deepening of the debate concerning the policies on drug consumption must be grounded on a rigorous evaluation of the impact of the diverse alternatives to the prohibitionist strategy that are being tested in different countries, focusing on the reduction of individual and social harm.'
The Latin American Commission on Drugs and Democracy is an initiative born of former Presidents Fernando Henrique Cardoso, from Brazil, César Gaviria, from Colombia and Ernesto Zedillo, from Mexico, to respond to concerns related to the problems of drug consumption and traffic in Latin America from a Latin American perspective. The seventeen member group composed exclusively of Latin Americans from across the political spectrum was established last April and charged with assessing the American-led war on drugs and its impact on Latin American society and governance. While the United States largely funds the war, the body count and the reprecussions are largely Latin American ones. In 2008, drug-related violence in Mexico claimed over 5,000 lives, a 50% increase over 2007. In Colombia, the near dismantling of the FARC has not led to any abatement of drug shipments. Simply put, new cartels arise to take the place of those dismantled. Colombia has tackled since 1980 six different drug cartels, various paramilitaries and guerrilla groups only to see acreage and tonnage increase. It is an endless cycle that needs to be broken. Prohibition, eradication and interdiction have not worked. It is time that the United States assume a greater responsibility by tackling demand and by addressing its drug habit as a health problem.
Yesterday the Commission released its report reaching the conclusion that so many other studies have reached in the past, the US drug war effort in the region is an abject failure. The US insists on treating the drug trade as a supply problem, when it is clearly also a demand problem. Absent US demand, the drug trade declines significantly. Moreover, the US treats its domestic drug problem as a criminal one instead of approaching it as a health problem.