So this morning, the Chinese finally sign a deal to take Russian East Siberian Gas in a 30 year deal. They really did hold all the cards in the end in these negotiations. That Gas had nowhere else to go other than China if it came out of the ground at all. President Putin had already arrived in Beijing and it was touch and go whether the Chinese would sign - last minute squeeze by his hosts after a decade of negotiations? No wonder the Russians are desperate to do this deal. Already eastern European countries are looking for alternative, more secure, energy supplies so that they can stay warm in future winters given the insecurity of Russian supply. This search may be looking for a medium to long term solution but Russia can see the writing on the wall. As for the Russian's inviting Chinese interest in its Siberian natural resources – Be Careful What You Wish For, Mr Putin!
Yesterday's Ballsy Short was about Eurozone deflationary expectations and my perennial whinge about Quantitative Expansion. Next month, it looks like ECB President Draghi will ramp up Euroland’s QE. Question is: will this liquidity reach smaller businesses in Europe. This chart from an article in today’s International New York Times entitled “Little guys still face a euro credit crunch” shows the high cost of SME loans in Euroland when the ECB base rate is currently a negligible ¼%! How can SMEs grow with rates like this? With the coming deflation and no growth how can periphery Euroland ever repay debt?
The spectre of DEFLATION hangs over the world's developed economies despite the massive Quantitative Expansion (QE) of the global money supply by Central Banks. Too Big Too Fail institutions have filled their boots and stuffed their balance sheets with cash to cover their bad and not-marked-to-market-yet assets and to meet increased regulatory capital reserve requirements. This morning’s survey by #Bloomberg tells us what ‘investors’ think. But these are same people who blindly invested in collatorised Debt Obligartions and hooky mortgage derivative instruments that brought the system to its knees in 2007/08. If Draghi listens and responds to them, he is likely to move to an even more aggressive QE as the news box above shows. Are we doomed once again to a financial crisis worse than the one we just had?
Is the solution to problems of global inequality more ‘world government’? This remedy lies at the heart of the policy prescriptions in the book by French Economist Thomas Piketty, "Capital in the Twenty-First Century", which is taking the world by storm according to The Economist (Read summary here).
The international numbers for global inequality are shocking and Piketty puts them into useful historic context. But his prescriptions are, as a friend put it: “global government, global taxation and uber socialism or, in old terms, ‘communism’ in a nice suit”. After the European parliamentary elections this debate will really take off…
Concise Ballsy Thinking as the latest news rolls off the ticker tape. (Er, if you are under 20, Google it!)