Competitive devaluations threaten trade wars, says Michael Pettis, citing the Vietnamese devaluation. The theory is that countries unable to devalue will be forced to raise tariffs. This comes as North Korea strikes two zeros off its currency, the won. But the picture is more complex than that. Chris Giles agrees that competitive devaluations could lead to currency trade wars, but argues the devaluation of the dong – still under pressure – is not the trigger. Neither is the won.
Creditors of Dubai World, including hedge funds and banks, have formed a group. It seems that investors in $3.5bn of Nakheel’s bonds will form 25 per cent of the issue, meaning they can block bond restructuring plans. Dubai’s ruling Sheikh has said investors should understand the risks and be able to differentiate between sovereign and corporate debt. Paul Kedrosky drily observes that the news of Dubai World was sent on government letterhead.
Both India and Indians are vulnerable to Dubai tremors. India, because of remittances ($27bn pa) and exports ($17.5bn pa, = 10 per cent). Indians, because of the 4.5m Indian ex-pats living in the Gulf, of whom roughly half are based in the UAE. Apparently Indian workers are being sacked by SMS, losing their visas at the same time. If they don’t have the savings to move themselves and their families to find work, what will happen to them?
The US would still be in recession were it not for the American Recovery and Reinvestment Act (ARRA), CBO data show: ARRA has added 1.2 to 3.2 per cent to GDP. “This is significant looking forward. The stimulus probably had the peak impact on GDP growth in Q3, and the positive contribution will diminish over the next few quarters. Without a pickup in end demand, the economy could slide back into recession next year,” says Calculated Risk. The ARRA bounce and the reduction in inventories leads Krugman to warn of a double-dip recovery but apparently Fed models assign a probability of zero to such an outcome. But does that say more about the recovery or the Fed’s models?
As Ben Bernanke faces a grilling at congressional confirmation hearing, it seems he now thinks the Fed should pop bubbles – a radical shift of policy from the Greenspan days: “The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future.” Perhaps he’s been reading George Soros.
And one man’s pirate is another man’s Robin Hood. Somali pirates have set up a co-operative and exchange to invest profits, winning support from locals. The four-month-old exchange now hosts 72 “maritime companies”, 10 of which have so far been successful at hijacking. “Everybody can take part, whether personally at sea, or on land by providing cash, weapons or useful materials. We’ve made piracy a communal activity.” HQ is in a former fishing village, whose “district gets a percentage of every ransom from ships that have been released, which is spent on public infrastructure, including our hospital and our public schools.”