Tuesday, July 10, 2012

525 UK becoming third-world? Australia's Mining "boom" creates Current Account Deficit

UK becoming third-world? Australia's Mining "boom" creates Current
Account Deficit

(1) UK becoming third-world? Not only UK - the whole "Anglo-American" world
(2) UK becoming third-world?
(3) Australia's Mining "boom" creates Current Account Deficit
(4) Current Account blows out with imports of equipment for iron ore and
coal mines
(5) Mining equipment imports drives up deficit
(6) 97.4% of Cocaine profits are reaped by criminal syndicates, and
laundered by banks

(1) UK becoming third-world? Not only UK - the whole "Anglo-American" world
- Peter Myers, June 13, 2012

The decline of Britain and the United States has been announced for the
last twenty years (item 1). Yet their power on the world stage
continues; how to explain this paradox?

That power is based on their past wealth. As it is being used up, it
will not be replaced. So the "decline" is something we project into the
future as that wealth dissipates.

The entire Anglo-American world runs Current Account Deficits. It's
afflicted with the same malaise. Britons and Americans might envy
Australia's "mining boom", but our Current Account Deficit is
approaching $60 billion (items 3-5). How is this possible in a "boom"?

It's because we've abandoned Manufacturing. And we've done that because
our"leaders" forced Free Trade on us - the abandonment of Tariff
Protection such as we had in the 1950s & 60s. Japan came up with
non-Tariff barriers; China protects itself with a manipulated exchange-rate.

But why do our leaders persist? It's because they believe in "One World"
- World Government. They don't believe in independent countries or
national sovereignty. They secretly feel contempt for the people they rule.

(2) UK becoming third-world?

Little Britain: why the UK is no longer a superpower

Economic crisis apart, the United Kingdom is still a major player on the
world stage, right? Wrong

Larry Elliott and Dan Atkinson

guardian.co.uk, Friday 8 June 2012 23.01 BST

The heart of the Square Mile in London looks the same as it did 100
years ago. The Mansion House is off to the left and Cheapside still
rises gently up the hill towards St Paul's Cathedral. Closer inspection,
though, shows that the Royal Exchange is now a high-class shopping mall,
where City workers can browse at lunchtime for Hermès scarves and Gucci
handbags. It is no longer the hub of the City, let alone the beating
heart of the most powerful nation on Earth.

Going South: Why Britain will have a Third World Economy by 2014

by Larry Elliott, Dan Atkinson

London remains one of the globe's three financial centres, dominating
that slice of the day after night falls in Tokyo and before day breaks
in New York. But the City's centre of gravity has moved several miles
east to Canary Wharf on the Isle of Dogs, where most of the investment
banks now have their European homes, and west to the cluster of hedge
funds behind discreet nameplates in Mayfair. Only a few of the biggest
financial institutions are now British-owned, the so-called Wimbledon
effect, where London hosts the world's best but lacks domestic champions
of its own.

It has been three-quarters of a century since Fred Perry was the last
Briton to capture the men's singles title on the grass courts of SW19,
in the era when sterling could seriously be considered the world's
premier reserve currency. Some would say the pound never recovered from
the first world war. From the moment the UK finally came off the gold
standard in 1931, the story has been one of devaluations of the currency
once in every generation in an attempt to price uncompetitive exports
back into global markets: officially in 1949, 1967 and 1992; as a result
of market forces in 1976, and again in 2007, when the onset of the
global financial crisis saw the pound depreciate by 30%.

Lombard Street has changed, too. Of the five big high-street banks, one
is operated out of Hong Kong, one out of Madrid and two out of the
Treasury in Horse Guards Road. The financial crisis of 2007-8 resulted
in two banks – Lloyds and the Royal Bank of Scotland – being
part-nationalised by the government, with all the others taking
advantage of various Bank of England schemes that allowed them to trade
in worthless "assets" for gilt-backed securities and to fill their
coffers with newly minted electronic money.

The cotton and woollen mills are long gone, as are many of the companies
in the electronics and motor vehicle sectors that flourished briefly in
the 1930s and again after the second world war. The decline of British
manufacturing is symbolised by the fate of Longbridge in Birmingham. At
the end of the 1960s, it was the largest car plant in the world,
employing 250,000 people, but after the collapse of MG Rover in 2005,
most of the site was sold off for commercial and residential use. There
are still a few car workers at Longbridge, but they are employed by the
Shanghai Automotive Industry Corporation. The old Morris plant at
Cowley, on the outskirts of Oxford, has survived and is still churning
out the Minis that, along with Mary Quant dresses and the Beatles, were
the symbols of the swinging 60s. The plant, though, is owned by BMW of
Bavaria. It is a similar story for Jaguar and Land Rover, run by the
Indian company Tata.

Gone, too, is the oil that briefly, in the 1970s and 1980s, offered the
promise of a windfall to finance industrial regeneration. The oil wells
are all but dry, so Britain is no longer a beneficiary of high crude
prices caused by strong demand from the emerging world and the gradual
decline in production from fields where oil is cheap to extract. Oil and
gas are imported from Russia and the Middle East, nuclear power stations
are coming to the end of their lives and Britain has only a handful of
working coalmines. The words used by Sir Edward Grey in 1914 now have a
more literal meaning: the lights are about to go out.

In the hundred years from 1914 to 2014, the century since the outbreak
of the first world war, the UK will have declined from pre-eminent
global superpower to developing country, or "emerging market". The
symptoms of this vertiginous plunge in the world's rankings are already
starkly apparent: a chronic balance of payments deficit, a looming
shortage of energy and food, a dysfunctional labour market, volatility
in economic growth and a painful vulnerability to external events.

Since the start of the crisis, the UK has borrowed more in seven years
than in all its previous history. It has impoverished savers by pegging
the bank rate well below the level of inflation, and indulged in the
sort of money-creation policies normally associated with Germany in
1923, Latin American banana republics in the 1970s and, more latterly,
Robert Mugabe's Zimbabwe.

Then there is the large number of unproductive workers engaged in
supervisory or "security" roles, on the streets, in public parks, on the
railways and at airports. There are the wars fought without the proper
resources to do so, and the awareness among military commanders that, in
the absence of any military conflict, their forces will be shrunk
further, there being no attempt objectively to assess the nation's
enduring defence needs. There is the ramshackle infrastructure existing
in parallel with procurement contracts that run billions of pounds over
budget and are then cancelled.

If these are the big indicators of imminent relegation, the smaller ones
are too numerous fully to catalogue. Thus the UK government has unveiled
a "tourism strategy", in the manner beloved of developing countries the
world over, and the annual allocation of places at state schools has
disclosed such an enormous shortage that the authorities have resorted
to lotteries and other forms of rationing, rather like the "rolling
blackouts" seen in post-colonial countries that have allowed their power
stations to decay.

On 21 March, chancellor George Osborne, in his Budget speech,
acknowledged that the UK was now in competition not with Germany or the
US but with emerging economies: "Do we watch as the Brazils and the
Chinas and the Indias of this world power ahead of us in the global
economy; or do we have the national resolve to say: 'No, we won't be
left behind. We want to be out in front'?"

Elsewhere in his speech, he made this telling aside: "[We are] working
to develop London as a new offshore market for the Chinese currency."

Not only is the UK supposedly averse to offshore financial centres,
believing them to be hotbeds of tax evasion and money laundering, but
deliberately setting out to create one has been the act of developing
nations around the world, from Panama to the Seychelles, not of mature,
developed economies.

This summer will be the third time that the Olympic Games has been held
in London. On the first occasion, in 1908, the UK was the world's
superpower. On the second, in 1948, the UK was the one country in
western Europe not completely devastated by six years of total war, but
it came a poor third to the US and the Soviet Union in geopolitical
influence. By 2012, the UK has joined the ranks of the nations that see
the Games as a way of showcasing themselves or of getting the taxpayer
to fund extravagant regeneration schemes that would not have been seen
as financially viable in other circumstances. Neither Herbert Asquith
nor Clement Attlee felt the need, as David Cameron apparently did at the
Davos meeting of the World Economic Forum in January 2012, to cajole
business leaders to come to the UK for the 16 days of the London Games
so that they could eye up investment opportunities. The foreign
journalists who flew into London to do their pieces about Swinging
Britain in the 1960s and Cool Britannia in the 1990s will now come to
write long think pieces about what a de-developing country looks like.

A developing economy – or strictly, in the case of the UK, a
de-developing economy – exhibits certain features. It cannot find work
for all its young people, and contains a large number of unemployed
graduates, traditionally a major source of social tension. Despite this,
it imports workers from abroad to fill the gaps left by its own
dysfunctional education system, and it supplies beer money, in the form
of cash benefits, to its hard-to-employ native workers. Its economic
policies lack clarity: on tax, on inflation, on public expenditure. It
is particularly vulnerable to price movements in major world
commodities. Above all, and perhaps in summary of these symptoms, it is
weak, dependent on outsiders for finance, skilled workers and energy

The UK accounts for just 3% of the goods exported globally, down from
4.4% at the turn of the millennium, and is a net importer of industrial
products, food and energy. Put simply, it used to be a great
manufacturing nation but is one no longer. The City has replaced
manufacturing as the hub of the economy. Those in charge of the finance
sector rook their customers and shareholders to become filthy rich. Pay
and rewards are skewed heavily towards the top 1% of earners. Everybody
else has to put up with wage restraint, but is able to consume more by
virtue of the City's willingness to load everybody up on debt and the
Bank of England's willingness to facilitate asset-price bubbles by
keeping interest rates low. Most work is in low-skill jobs, with large
dollops of public spending used to create for graduates white-collar
jobs that would, in previous eras, have been held down by school
leavers. This process is going to continue; by 2040, and perhaps sooner,
the UK will have dropped out of the list of the 10 biggest economies in
the world.

Does this matter? In one sense, no. Provided the UK gets richer decade
by decade, it does not matter that other countries will be getting
richer more quickly. Given that countries such as India, Brazil,
Indonesia and Turkey lag behind in terms of incomes and technological
knowhow, a period of catching up is both inevitable and desirable.
Furthermore, it wouldn't matter were these emerging giants to become
richer than us in absolute terms. Were the average Turk or Brazilian to
be wealthier than the average Londoner, Ulsterman or Yorkshirewoman,
that would be unimportant, provided UK living standards continued to
rise and the economy continued to generate the surplus wealth needed for
both commercial investment and the purchase of social goods such as
medical treatments and other types of welfare.

But this is a big proviso. The danger is not that we will lose our place
in some global club or other. Such an outcome may dent the pride of our
leaders as they are denied a place in a prestigious venue, but would be
of little concern to ordinary people. The genuine worry is that we will
endure falling real living standards – actually get worse off.

It has happened before, but only for short bursts, in 1974, 1976, 1977
and 1981. It happened again in 2010 and 2011, which suggests it is
becoming something of a modern-day habit. To arrest and reverse our
current "submerging" status, we need a development model. There is no
miracle cure, but there are lessons to be learned, not just from the
postwar history of the developed world, but also from the emerging
market economies that are rapidly approaching in Britain's rear-view mirror.

It is not just a question of adopting a different system of taxation or
limiting the ability of the commercial banks to create credit – however
commendable those individual ideas may be in themselves. One hundred
years of pretending to be a "big beast" have to end now. There has to be
an acceptance, like that in Germany, France and Japan in 1945, that the
country has hit rock bottom and needs to change. In football, this
happens all the time: a new manager goes to a struggling club and
proceeds to clear out the dead wood. This has never happened to the UK,
and even now the country does not seem ready for the sort of cathartic
moment that the defeated Axis powers had at the end of the second world
war. Even now there is a belief that all will be well, that something
will turn up, that Britain will muddle through. The temptation, as ever,
will be to look at the events of the past decade as another occasion
where disaster was averted by a whisker. The reality is different: this
is the moment when the UK has to face the truth about its diminished
status in the world.

• Extracted from Going South: Why Britain Will Have A Third World
Economy By 2014, by Larry Elliott and Dan Atkinson, published by
Palgrave Macmillan on 14 June at £14.99. To order a copy for £11.99,
with free UK p&p, visit the Guardian Bookshop



9 June 2012 1:21AM

You state that 'the UK is supposedly averse to offshore financial
centres' - no country has done more to assist their development, with
the possible exception of Switzerland. We have also played our full part
in pushing politically for the 'free trade' globalisation process. The
two combined have produced a massive transfer of employment from Europe
and North America to Asia and a rapid fall in commercial tax take for
our Governments. Our welfare services, relatively sophisticated but
expensive, gives us a high cost base. You don't have to be a genius to
see that something will have to give. We either compete with Chinese
wages at, say, US$1500 a year or move back to managed trade, and take
back our capital from the offshore centres, while there is still some
money left.

(3) Australia's Mining "boom" creates Current Account Deficit


Current account widens as exports shrink

By Elysse Morgan | ABC
Posted June 05, 2012 17:31:36

The latest current account figures show the resources investment boom is
not yet boosting economic growth.

Australian Bureau of Statistics figures show the current account deficit
widened by 55 per cent in the first quarter of the year to $14.9 billion.

The deficit was widened by the high dollar, which kept exporters
uncompetitive, and global economic uncertainties, which weighed on the
value of metal ores and minerals.

The ABS estimates the deficit will shave half a per cent from economic
growth in the period.

But the bureau also released figures on government spending showing that
the public sector contributed positively to growth in the period.
Westpac senior economist Justin Smirk said the rise in Federal
Government spending would offset the fall in exports.

"It's probably a net flat result, but what is clear is that the export
side, that traded side that everyone was hoping would be providing a
very positive growth stimulus, is not happening," Mr Smirk said. Mr
Smirk says the figures show the expansion in the mining sector is yet to
pay off.

"All that investment we've done in terms of building up a big resources
sector is yet to deliver net exports," Mr Smirk said. "With the slowdown
in the global environment [that] has meant that our traded goods -
that's our import and export - is a drag on growth. "We're importing
more value than we are exporting, and you'd have to say that's quite
disappointing given all that time and money we've put into that cycle."
Nevertheless, he believes economic growth will remain at an annual rate
slightly higher than 3 per cent.

(4) Current Account blows out with imports of equipment for iron ore and
coal mines


Foreign goods push account deficit to two-year high


Herald Sun

June 06, 2012

AUSTRALIA'S current account deficit has soared to its highest level in
two years after a drop in resource prices and an influx of foreign-made
equipment to boost production at iron ore and coal mines.

The deficit expanded to a seasonally adjusted $14.89 billion in the
March quarter, exceeding analyst predictions of a $14.6 billion deficit
for the period.

Commsec chief economist Craig James said the data showed how exposed
Australia's economy is to the European debt turmoil.

"The latest data on Australia's external accounts should remove any
sense that Australia is a safe haven, protected from the woes in the
northern hemisphere," he said.

The biggest hits came from a $3.9 billion drop in the value of iron ore
and coal exports to $50.7 billion as commodity prices fell 8 per cent.

Metal ores and minerals were also down $2.4 billion while coal, cokes
and briquettes slipped $1.2 billion in value.

At the same time import volumes were more resilient, rising 1.2 per cent
in the quarter, broadly reflecting the nation's reliance on importing
vital mining equipment.

"(This is) largely driven by the importation of mining related capital
goods," JP Morgan analyst Tom Kennedy said.

"This strength in mining related imports reinforces the multi-speed
nature of the economy, where traditional industries like manufacturing
are paring back activity while mining exposed sectors are performing well."

Meanwhile, Mr James said Australia's continued high current account
deficit and high foreign debt highlighted the nation's need for foreign

He said while Australia could "hold its head up high" on the
Government's move to put the budget in surplus Australia still needed
the global economy to grow to support export returns and so earn the
income to service foreign debt.

The figures also included an upward revision of the December quarter
current account deficit to $9.64 billion from the $8.37 billion
initially reported.

(5) Mining equipment imports drives up deficit



June 05, 2012


AUSTRALIA posted a much larger current account deficit in the first
three months of 2012, mainly due to a large rise in mining equipment

Australia's seasonally adjusted current account deficit widened to
$14.892 billion in the March quarter, from a deficit of $9.639 billion
in the December quarter, the Australian Bureau of Statistics reported today.

The median market forecast was for a deficit of $14.650 billion in the

JP Morgan economist Tom Kennedy said capital goods imports the the big
swing factor in the current account figures.

"It was a lot of mining equipment that we don't produce domestically, so
it really does reinforce the multi-speed nature of the economy where
we're importing mining related equipment," Mr Kennedy said.

"The income side of the account was more or less in line with expectations.

"You've got general weakness on the export side due to reduced demand
from major trading partners, ie China."

CommSec chief economist Craig James said the balance of payments data
was a bit better than expected.

"Overall, I don't think it's going to greatly change our expectations
for economic growth in the March quarter," he said.

"That will be around half of one per cent.

"Certainly the economy is not shooting the lights out at present, but
it's not going backwards in a big way."

However, the current instability in Europe, and the focus on global debt
meant that keeping the deficit down was a priority.

"The data shows you that there's no room for complacency," Mr James said.

"We still have a significant current account deficit, and the world at
the moment is focused on debt, and keeping those imbalances down.

"Certainly anything the Government can do to reduce its deficit will be
good from a big-picture point of view."

(6) 97.4% of Cocaine profits are reaped by criminal syndicates, and
laundered by banks

Date: Tue, 5 Jun 2012 02:17:09 -0700 (PDT) From: Andre Zagonski


Western banks 'reaping billions from Colombian cocaine trade'

The Guardian, June 2, 2012

While cocaine production ravages countries in Central America, consumers
in the US and Europe are helping developed economies grow rich from the
profits, a study claims

The vast profits made from drug production and trafficking are
overwhelmingly reaped in rich "consuming" countries – principally across
Europe and in the US – rather than war-torn "producing" nations such as
Colombia and Mexico, new research has revealed. And its authors claim
that financial regulators in the west are reluctant to go after western
banks in pursuit of the massive amount of drug money being laundered
through their systems.

The most far-reaching and detailed analysis to date of the drug economy
in any country – in this case, Colombia – shows that 2.6% of the total
street value of cocaine produced remains within the country, while a
staggering 97.4% of profits are reaped by criminal syndicates, and
laundered by banks, in first-world consuming countries.

"The story of who makes the money from Colombian cocaine is a metaphor
for the disproportionate burden placed in every way on 'producing'
nations like Colombia as a result of the prohibition of drugs," said one
of the authors of the study, Alejandro Gaviria, launching its English
edition last week.

"Colombian society has suffered to almost no economic advantage from the
drugs trade, while huge profits are made by criminal distribution
networks in consuming countries, and recycled by banks which operate
with nothing like the restrictions that Colombia's own banking system is
subject to."

His co-author, Daniel Mejía, added: "The whole system operated by
authorities in the consuming nations is based around going after the
small guy, the weakest link in the chain, and never the big business or
financial systems where the big money is."

The work, by the two economists at University of the Andes in Bogotá, is
part of an initiative by the Colombian government to overhaul global
drugs policy and focus on money laundering by the big banks in America
and Europe, as well as social prevention of drug taking and
consideration of options for de-criminalising some or all drugs.

The economists surveyed an entire range of economic, social and
political facets of the drug wars that have ravaged Colombia. The
conflict has now shifted, with deadly consequences, to Mexico and it is
feared will spread imminently to central America. But the most shocking
conclusion relates to what the authors call "the microeconomics of
cocaine production" in their country.

Gaviria and Mejía estimate that the lowest possible street value (at
$100 per gram, about £65) of "net cocaine, after interdiction" produced
in Colombia during the year studied (2008) amounts to $300bn. But of
that only $7.8bn remained in the country.

"It is a minuscule proportion of GDP," said Mejía, "which can impact
disastrously on society and political life, but not on the Colombian
economy. The economy for Colombian cocaine is outside Colombia."

Mejía told the Observer: "The way I try to put it is this: prohibition
is a transfer of the cost of the drug problem from the consuming to the
producing countries."

"If countries like Colombia benefitted economically from the drug trade,
there would be a certain sense in it all," said Gaviria. "Instead, we
have paid the highest price for someone else's profits – Colombia until
recently, and now Mexico.

"I put it to Americans like this – suppose all cocaine consumption in
the US disappeared and went to Canada. Would Americans be happy to see
the homicide rates in Seattle skyrocket in order to prevent the cocaine
and the money going to Canada? That way they start to understand for a
moment the cost to Colombia and Mexico."

The mechanisms of laundering drug money were highlighted in the Observer
last year after a rare settlement in Miami between US federal
authorities and the Wachovia bank, which admitted to transferring $110m
of drug money into the US, but failing to properly monitor a staggering
$376bn brought into the bank through small exchange houses in Mexico
over four years. (Wachovia has since been taken over by Wells Fargo,
which has co-operated with the investigation.)

But no one went to jail, and the bank is now in the clear. "Overall,
there's great reluctance to go after the big money," said Mejía. "They
don't target those parts of the chain where there's a large value added.
In Europe and America the money is dispersed – once it reaches the
consuming country it goes into the system, in every city and state.
They'd rather go after the petty economy, the small people and coca
crops in Colombia, even though the economy is tiny."

Colombia's banks, meanwhile, said Mejía, "are subject to rigorous
control, to stop laundering of profits that may return to our country.
Just to bank $2,000 involves a huge amount of paperwork – and much of
this is overseen by Americans."

"In Colombia," said Gaviria, "they ask questions of banks they'd never
ask in the US. If they did, it would be against the laws of banking
privacy. In the US you have very strong laws on bank secrecy, in
Colombia not – though the proportion of laundered money is the other way
round. It's kind of hypocrisy, right?"

Dr Mejia said: "It's an extension of the way they operate at home. Go
after the lower classes, the weak link in the chain – the little guy, to
show results. Again, transferring the cost of the drug war on to the
poorest, but not the financial system and the big business that moves
all this along."

With Britain having overtaken the US and Spain as the world's biggest
consumer of cocaine per capita, the Wachovia investigation showed much
of the drug money is also laundered through the City of London, where
the principal Wachovia whistleblower, Martin Woods, was based in the
bank's anti-laundering office. He was wrongfully dismissed after
sounding the alarm.

Gaviria said: "We know that authorities in the US and UK know far more
than they act upon. The authorities realise things about certain people
they think are moving money for the drug trade – but the DEA [US Drugs
Enforcement Administration] only acts on a fraction of what it knows."

"It's taboo to go after the big banks," added Mejía. "It's political
suicide in this economic climate, because the amounts of money recycled
are so high."

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