Arithmetic science will prove why population and GDP growth be unsustainable

Indefinite growth on a finite planet is impossible. Few would argue the truth of this statement in physical terms, but most believe that economic growth is immune to such a claim, because—the story goes—economics can be decoupled from physical throughput via efficiency improvements, transformative technology/innovation, and increased activity in low-resource-use “service” industries. All of these things happen, and are real. But I argue in a series of blog posts on Do the Math that these notions, too, have limits. I also explore what this means for the concept of sustainability.
We begin with a startling illustration that continued energy growth at 2% per year has us consuming energy at a rate equivalent to the power output of all 100-billion stars in the Milky Way galaxy inside of 2500 years! Furthermore, no matter what the energy technology, the Earth’s surface would become so hot that water boils in a little over 400 years, and we reach the surface temperature of the sun in 1000 years. This is not global warming from CO2, but straightforward thermodynamics, and is an inescapable consequence of a continued growth trajectory on Earth. There are many reasons why this won’t happen—which is to say that we will end physical growth (in energy, for instance) within a century or two at the latest. Fusion (even the “cold” variety) is not exempt.
Next is a demonstration that economic growth cannot continue indefinitely against a constant energy supply. This starts with the observation that efficiency cannot be increased arbitrarily. We’ve got maybe a factor of two to gain, yet, at a typical rate of 1% per year. Nor can low-intensity activities continue to grow forever in a flat-energy world, because such things will saturate the economy—some fraction of which must still rely on a non-growing energy base. Some decoupling can extend economic growth for a time, but complete decoupling is not a real possibility.
This is such a key point, that it is worth elaborating here. To continue economic growth against flat energy would require the fractional cost of energy in the society to shrink toward zero, ultimately becoming essentially free. After non-energy economic growth leaves energy in the dust, one person could then buy all the energy (and food and manufacturing and other energy-intensive sectors) for a song. This will clearly not happen: energy is not just another commodity, but the resource that allows the rest of the economy to function and humans to eat. A limited resource as important as energy will saturate at some fraction of GDP (say 5% for argument’s sake). Since energy no longer grows in scale, neither can the remaining 95% of the economy. Change can still happen. Fads can come and go, but in something closer to a zero-sum game.
Taken together, the lesson is that we will ultimately be forced to abandon an economic system based on growth. Growth drives all our choices now, defines our economic structure and incentives, is the basis for interest, loans, finance, etc. Clinging to growth in a finite world sets us up on a collision course, and we will be losers if we don’t deliberately step off the train first, aiming for a steady-state existence. We might bundle this concept into the over-used term: “sustainable.”
The problem with the word “sustainable” is that we are unable to converge on what it really means: what practices are truly sustainable? And at what level might we expect to stabilize? For instance, the U.S. has approximately 5% of the world’s population, consuming roughly 25% of the world’s energy resources. In order realize the dream of many—to bring a growing world population up to a growing American standard of living—would take perhaps ten times the current throughput. Efficiency measures may knock this back to a factor of five. We are having great difficulty managing our current throughput in this world (fisheries, agriculture and livestock, deforestation, water depletion, climate change, pollution, etc.) so that it is very difficult to imagine ramping up by a factor of five.
A kid may really want a pony—more than anything in the world. A wise parent might suggest that the kid first try to take care of a gerbil, figuring this is five times easier than managing a pony. If the kid demonstrates that he or she can feed the gerbil, clean its cage, and keep it healthy, then the parent may graduate to a more demanding kitten. Next would be a puppy, requiring greater responsibility. If that’s successful, it may be time for a goat—now requiring the kid (not to be confused with the young goat) to manage a paddock. If this works out, it’s finally time for a pony.
In wanting the world to grow into an American standard of living, we effectively want a pony. The problem is, we have not demonstrated that we can take care of our gerbil! We have not deserved our pony, and I would say we don’t deserve to bandy the term “sustainable” when we have no idea what we can actually manage, and have not talked seriously about a steady-state economic existence first.
This post follows a talk I gave at the Compass Summit in Palos Verdes, California on October 26, 2011. A video of the presentation can be seen here.


About the Author: Tom Murphy is an associate professor of physics at the University of California, San Diego. An amateur astronomer in high school, physics major at Georgia Tech, and PhD student in physics at Caltech, Murphy has spent decades reveling in the study of astrophysics. He currently leads a project to test General Relativity by bouncing laser pulses off of the reflectors left on the Moon by the Apollo astronauts, achieving one-millimeter range precision. Murphy’s keen interest in energy topics began with his teaching a course on energy and the environment for non-science majors at UCSD. Motivated by the unprecedented challenges we face, he has applied his instrumentation skills to exploring alternative energy and associated measurement schemes. Following his natural instincts to educate, Murphy is eager to get people thinking about the quantitatively convincing case that our pursuit of an ever-bigger scale of life faces gigantic challenges and carries significant risks.

WebOS open source for controlling cars/trains/ships?

“According to Melissa Chau, research manager for client devices at IDC Asia-Pacific, the analyst explained that there is currently a “big fight for developers” among mobile OS ecosystem. In this landscape, WebOS faces a “chicken and egg” problem as hardware vendors will find it hard to justify building devices for an OS that few developers are building on, while developers will not want to work on an ecosystem that does not have hardware vendors.”

SAN FRANCISCO – Hewlett Packard has decided to open its webOS mobile operating system to developers and companies, potentially taking on Google’s free Android platform that is popular with handset makers.

HP, which acquired webOS in a US$1.2-billion (S$1.6-billion) purchase of Palm in 2010, had been trying to figure out how to recoup its investment after a failed foray into the smartphone and tablet market.

The 600-strong webOS division – or as many of its staff who wants to go – will in effect be spun off into a separate startup business trying to take advantage of the 750,000 HP Touchpads that have been sold, and any Palm smartphones.

HP chief executive Meg Whitman said the company looked at a number of options for webOS, including a sale and shut down of the division.

The technology giant will make webOS available under an open source licensing agreement, but it has still not hashed out the terms of the licensing deal it plans to offer.

There are a number of open source projects that can be used as examples for deciding the structure of licensing, including Android and browser Mozilla.

The company plans to solicit ideas from developers before deciding on the licensing terms, Ms Whitman said.

The future of webOS had been in limbo since August after HP killed its flagship webOS-based TouchPad tablet following poor sales.

Ms Whitman also said HP may get back into the consumer tablet market in 2013 but it will not be making any more smartphones.

While Google has the world’s most-used mobile system with over 550,000 devices activated every day, HP’s webOS could be an alternative to companies apprehensive that the Web search giant may compete with them directly in the smartphone handset market through its US$12.5 billion purchase of Motorola Mobility.

The webOS platform, which had been HP-only software, is widely viewed as a strong mobile platform, but has been criticised for having few applications – an important consideration while choosing a mobile device.

Most developers prefer to work on Apple’s iOS or Google’s Android because both are on millions of devices – unlike webOS.

“Making it open source changes the rules of the game and has the potential to make (webOS) more appealing,” said Mr Van Baker, an analyst with Gartner. “It presents a potential challenge to Android, but I wouldn’t call it a real challenge until we get a little further down the road.”

HP still has to make sure the code is available and the tools for developers are as robust as those provided by Android to succeed, he added.

HP has not revealed its plans for any mobile hardware after the TouchPad was killed. AGENCIES
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“The ideal market is to position webOS as an operating system for the in-car infotainment control system which has a worldwide car market appeal with modifications to its source codes as it has a unique way to handle multitasking in its linux kernel, keeping it open source, as it is not resource hungry, imagine what it will be like if every device manufacturer needs your OS to work to control the car/train/ship. – Contributed by Oogle.”

Time to turn vision into reality

Updated: 2011-12-03 07:52 By Shan Chu (China Daily)

Transition from theory to action has been slow and countries have to act together to guarantee everybody the right to development
Dec 4 marks the 25th anniversary of the adoption of the Declaration on the Right to Development by the UN General Assembly. On this historic occasion, people all over the world, those in developing countries in particular, should pay tribute to those who have made great contributions to the recognition of this important human right.
Though the constituent elements of the right to development are embodied in the UN Charter and other UN human rights instruments, such as the International Covenant on Economic, Social and Cultural Rights, it was in 1972 that Judge Keba M’Baye of Senegal advocated that development should be regarded as a right. The UN General Assembly subsequently authorized a study on this issue in 1977.
In 1986, the United Nations endorsed the Declaration on the Right to Development, which clearly states: “The right to development is an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized”.
Since then, the right to development has been reaffirmed by the 1992 Rio Declaration on Environment and Development, the 1993 Vienna Declaration and Programme of Action, the 2000 Millennium Development Goals, as well as a series of resolutions by the UN General Assembly and Human Rights Council. Promotion and protection of the right to development is now included in the mandate of several UN institutions and offices.
Though a quarter of a century has passed, the transition of the right to development from theory to action has been slow, as the UN Secretary-General Ban Ki-moon has said: “On paper, the declaration lived. In practice, it languished.”
Certain countries, which have always claimed they fly high the flags of human rights, still do not view development as a right, nor do they agree to negotiating a binding international agreement on this topic. This minority in the international arena argues that theoretical work is needed to define the right to development, but this simply does not hold up to scrutiny as the meaning, status and ways to achieve this right are detailed in relevant UN instruments. It is these countries that are hindering the process of realizing the right to development, both in theory and in practice.
The world is entering an extraordinary historical stage and undergoing profound and complex changes. Development is becoming an increasingly important issue. Poverty still remains the obstacle for people in developing countries to fully enjoy their human rights. According to UN statistics, the population living in absolute poverty has increased by 64 million due to the international financial crisis, and nearly 1 billion people are suffering starvation. Malnutrition, inequalities and armed conflicts continue to plague people in many parts of the world, the least developed countries in particular. Rising unemployment and denial of the right to development, to a large extent, led to the turmoil in West Asia and North Africa. Even the developed countries are faced with development challenges.
Nowadays, human rights activists like to talk about Internet freedom, but a large portion of the world’s population have no access to the Internet, and there is a growing digital divide between people in industrialized countries and developing countries. For example, the Internet access rate in Asia is only 23.8 percent, significantly lagging behind the 58.3 percent in Europe. Internet freedom is important, but to enjoy this right, one should first of all have access to the Web. Therefore, the most urgent task is to bridge the digital gap and make computers and the Internet available for the majority of the world’s population.
Promoting and protecting the right to development has become a more important and pressing task than ever. So how can the universal right to development be fulfilled?
First, the right to development should be recognized at both the national and global levels. Development is a universal right. Certain Western countries should get rid of their ideological prejudices and put an end to the politicization in the debate on the right to development, so as to reach a consensus on this.
Second, every state should create favorable conditions to realize the right to development. All countries, the developed and developing ones alike, need to concentrate on development and formulate appropriate national policies for the constant improvement of the well-being of their citizens. To achieve this goal, maintaining social stability is very important, as history has repeatedly shown that stability and development go hand in hand.
Third, effective international cooperation is essential. In an interdependent world, only when all nations shake off poverty and the South and the North achieve even development, can there be common prosperity. Concerted efforts should be made to attain the Millennium Development Goals. Developed countries should honor their commitment to official development assistance, open markets, debt relief, and the transfer of advanced technologies to developing countries.
Actions speak louder than words. It is time for the international community to act together and make the right to development a reality for all.
The author is a Beijing-based scholar of international relations.

The other side of Austerity measures

In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.[1] Austerity policies are often used by governments to reduce their deficit spending[2] while sometimes coupled with increases in taxes to pay back creditors to reduce debt.[3] “Austerity” was named the word of the year by Merriam-Webster in 2010.[4]

Reasons for taking austerity measures

Austerity measures are typically taken if there is a threat that a government cannot honor its debt liabilities. Such a situation may arise if a government has borrowed in foreign currencies that they have no right to issue or they have been legally forbidden from issuing their own currency. In such a situation, banks may lose trust in a government’s ability and/or willingness to pay and either refuse to roll over existing debts or demand extremely high interest rates. In such situations, inter-governmental institutions such as the International Monetary Fund (IMF) may demand austerity measures in exchange for functioning as a lender of last resort. When the IMF requires such a policy, the terms are known as ‘IMF conditionalities‘.

Typical effects

Development projects, welfare, and other social spending are common programs that are targeted for cuts. Taxes, port and airport fees, and train and bus fares are common sources of increased user fees.
In many cases, austerity measures have been associated with protest movements claiming significant decline in standard of living. A case in point is the nation of Greece. The financial crisis—particularly the austerity package put forth by the EU and the IMF— was met with great anger by the Greek public, leading to riots and social unrest. On 27 June 2011, trade union organizations commenced a forty-eight hour labor strike in advance of a parliamentary vote on the austerity package, the first such strike since 1974. Massive demonstrations were organized throughout Greece, intended to pressure parliament members into voting against the package. The second set of austerity measures was approved on 29 June 2011, with 155 out of 300 members of parliament voting in favor. However, one United Nations official warned that the second package of austerity measures in Greece could pose a violation of human rights.[5]

Theoretical considerations

Contemporary mainstream economists consider macroeconomic policy in a dynamic stochastic general equilibrium (DSGE) framework, where fiscal policy is discussed within an optimal taxation framework that assumes a representative agent is optimizing over a long-term horizon. The reasoning behind such models is that the effect of any government deficit is mitigated by compensatory changes in the representative agent’s spending decisions. This occurs because the agent will be responsible for paying off that deficit in the future. Thus, from a modern mainstream macroeconomist’s point of view, reducing government deficit allows the private sector to consume more and support the economy. This viewpoint stems from their belief in the existence of a general economic equilibrium, which predicts that economic fluctuations revert back toward a “normal” state of affairs automatically. For this reason econometric models that are used in economic forecasting are calibrated to show convergence to full resource utilization and employment despite government’s fiscal tightening.
Old-Keynesians, such as Alvin Hansen, had a totally opposite view: they argued that government deficits provide the private sector both with new money for saving (the deficit) and a means to save (government interest-bearing bonds), increasing private sector wealth, and this wealth effect would reduce the need to save from current income. In their view government debt enabled the private sector to continue consuming. It was therefore not a burden, at least when held domestically, but a necessity.[6] This approach has interesting parallels with Richard Koo’s recent concept of balance-sheet recession.
According to modern monetary theory austerity measures by a national government are usually counterproductive because neither taxation nor bond issuance act as a funding mechanisms for the government.[7] Instead, all spending is done by crediting bank accounts, so national governments cannot run out of money unless they have fixed exchange rate to either foreign currency or gold, or they do borrowing in foreign currencies or they are part of a larger currency area like the eurozone where they do not have the right to issue money.[7][8]
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“Austerity measures brings health to the balance sheets by reducing debts which is followed by short term credit crunch but is countered by an expansion of credit when goals are met multiplied by the creation of wealth.” – Contributed by Oogle.  

紧缩措施带来的健康,其次是短期信贷紧缩信贷扩张乘以创造财富的目标是满足反驳减少债务的资产负债表提供者Oogle

FTA framework of Asia-Pacific region

PTI | 04:10 PM,Oct 16,2011

Kuala Lumpur, Oct 16 (KYODO) The Association of Southeast Asian Nations has prepared a framework of general principles to steer the establishment of an Asia-Pacific free trade agreement. The “ASEAN Framework for a Comprehensive Regional Economic Partnership” was discussed by ASEAN trade ministers at a one-day informal meeting in Kuala Lumpur yesterday for adoption by leaders of the 10-member group at their summit meeting in Bali next month. The framework sets out “principles under which ASEAN will enhance engagement with FTA partners” with the aim of “establishing a comprehensive economic partnership,” Kyodo News agency reported. ASEAN has FTAs with Japan, China, South Korea, India, Australia and New Zealand. The latest move reflects a deep concern among some member countries that ASEAN could be sidelined by the US-backed Trans-Pacific Partnership that has attracted attention even as it is being negotiated, especially if Japan decides to come on board, ASEAN official sources said. As a result, ASEAN would like to hasten creation of a regional FTA encompassing the ASEAN members and its FTA partners from outside the region, with ASEAN playing a central role in the initiative. Nine countries involved in negotiations for the TPP are Australia, Chile, New Zealand, Peru, United States and four ASEAN members — Singapore, Brunei, Malaysia and Vietnam. Japan is considering joining the TPP negotiations. “The purpose (of the framework) is to achieve a comprehensive and mutually beneficial economic partnership agreement,” ASEAN’s draft says. “This agreement shall also involve a broader and deeper engagement with ASEAN’s FTA partners and address new and emerging issues.” The general principles in the framework include differential treatment for ASEAN’s less developed members such as Vietnam, Cambodia, Laos and Myanmar. Other principles include ensuring the agreements are transparent and made available to the public, provide for economic and technical cooperation, contain measures to facilitate trade and investment and should contribute to ASEAN’s own plan for regional economic integration and economic development. (KYODO) 
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Plans in place in case of fallout from Euro Debt Crisis?

1) How will ASEAN contain a firewall in worst case scenerio against a Euro Debt Crisis?
Basel III will require banks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of risk-weighted assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital conservation buffer of 2.5% and (ii) a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high credit growth. In addition, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios. The Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash flows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.[4]

Macroeconomic Impact of Basel III

An OECD study [2] released on 17 February 2011, estimates that the medium-term impact of Basel III implementation on GDP growth is in the range of −0.05 to −0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.[7]
Basel III is an opportunity as well as a challenge for banks. It can provide a solid foundation for the next developments in the banking sector, and it can ensure that past excesses are avoided. Basel III is changing the way that banks address the management of risk and finance. The new regime seeks much greater integration of the finance and risk management functions. This will probably drive the convergence of the responsibilities of CFOs and CROs in delivering the strategic objectives of the business. However, the adoption of a more rigorous regulatory stance might be hampered by a reliance on multiple data silos and by a separation of powers between those who are responsible for finance and those who manage risk. The new emphasis on risk management that is inherent in Basel III requires the introduction or evolution of a risk management framework that is as robust as the existing finance management infrastructures. As well as being a regulatory regime, Basel III in many ways provides a framework for true enterprise risk management, which involves covering all risks to the business.[8]

Bringing forward key dates

Capital Requirements

Date Milestone: Capital Requirements
2013 Minimum capital requirements: Start of the gradual phasing-in of the higher minimum capital requirements.
2015 Minimum capital requirements: Higher minimum capital requirements are fully implemented.
2016 Conservation buffer: Start of the gradual phasing-in of the conservation buffer.
2019 Conservation buffer: The conservation buffer is fully implemented.

Leverage Ratio

Date Milestone: Leverage Ratio
2011 Supervisory monitoring: Developing templates to track the leverage ratio and the underlying components.
2013 Parallel run I: The leverage ratio and its components will be tracked by supervisors but not disclosed and not mandatory.
2015 Parallel run II: The leverage ratio and its components will be tracked and disclosed but not mandatory.
2017 Final adjustments: Based on the results of the parallel run period, any final adjustments to the leverage ratio.
2018 Mandatory requirement: The leverage ratio will become a mandatory part of Basel III requirements.

Liquidity Requirements

Date Milestone: Liquidity Requirements
2011 Observation period: Developing templates and supervisory monitoring of the liquidity ratios.
2015 Introduction of the LCR: Introduction of the Liquidity Coverage Ratio (LCR).
2018 Introduction of the NSFR: Introduction of the Net Stable Funding Ratio (NSFR)

Ministers also pledged to ensure OTC derivative contracts are cleared centrally although there are doubts that countries will meet the 2012 deadline. “In line with international efforts, we agree to undertake regulatory reforms so that all standardised OTC derivatives contracts are traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties. We will also enact reforms to see that OTC derivatives contracts are reported to trade repositories and non-centrally cleared contracts are subject to higher capital requirements,” the joint statement said.
However a recent poll by Risk.net found that the vast majority of respondents do not believe G-20 members will meet the end-2012 deadline for all standardised OTC derivatives to be cleared through CCPs.

Disclosure of exposure of Euro debt by ASEAN banks

2) To facilitate even greater trade between members, how the removal of barriers with the establishment of market pricing to determine demand and supply as controls to trade?
3) What will the roles of IMF and ADB for ASEAN members?


– Contributed by Oogle.



A Silver Lining amongst the Dark Clouds


Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands.
They wanted to take over one of the pharmacies in a chain he’d built by borrowing from private lenders. Instead, he made an offer of traditional retribution in this eastern Chinese city, known for loan sharks who have sometimes meted out violence to bad debtors.
“If you like, you can cut off one of my fingers instead,” Zhong, 42, says he told them.
Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7 percent a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.
At least 90 bosses in similar situations to Zhong have fled the city since April, and two killed themselves, according to Zhou Dewen, head of a small business association in Wenzhou. One was shoemaker Shen Kuizheng, who jumped to his death from his 22nd-story home on Sept. 21, he said.
Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, Zhou said. Similar problems are happening across China because private enterprises in China rely on underground borrowing rather than banks to operate, he said.
Their predicament prompted China’s premier Wen Jiabao to visit the city 230 miles (370 kilometers) south of Shanghai on Oct. 4, where he pledged help for troubled businesses. National and local leaders have since announced moves to help small firms, including offering easier access to bank loans, a cap on private-lending interest rates in Wenzhou and a crackdown on loan sharks that use violence.

‘Huge Pressure’

The measures have done little to help Zhong, he says.
“I am under huge pressure,” he says, sitting in a warehouse with fast-depleting stocks of medicine. “We don’t have enough money.”
The sudden collapse of informal lending networks reveals the fragility of China’s unregulated financing system when credit tightens and creditors lose confidence, said Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG. Money supply has shrunk as the government tightens lending to try and rein in inflation running near a three-year high.

‘Tip of Iceberg’

“This is a much bigger problem across the country,” said Tao, who estimates outstanding private loans stand at 4 trillion yuan, or 8 percent of total lending in China. “Wenzhou is just the tip of the iceberg.”
Most of the informal lending has been pumped into real estate developers riding China’s property boom that is showing signs of slowing, said Tao. In Wenzhou, it’s driven up home prices to among the most expensive in the country.
Chinese media reports of similar difficulties have emerged in the prosperous mining town Ordos in the north and the industrial heartland of Guangdong in the south.
The risks to China’s wider economy include a potential credit freeze triggered by increased mistrust among informal lenders, also referred to as curb lenders, according to an Oct. 11 report by Wang Tao, a Hong Kong-based economist at UBS AG. That could trigger more widespread bankruptcies, she said.
Wenzhou — a city of 9 million whose private enterprises range from shoemakers in dusty road-side homes to manufacturing plants in new industrial parks — produces 90 percent of China’s eyeglasses and exported lighters. The city’s wealth is reflected in the Porsches and Land Rovers parked in the streets and the emergence of downtown shopping arcades selling Hugo Boss clothes and Omega watches.

Embraced Deng’s Reforms

It was the first city to widely embrace private enterprise in the early 1980s under the economic reforms of then leader Deng Xiaoping, developing the most advanced private lending networks in the country. Businesses in Wenzhou used family and hometown networks because bank loans were hard to come by.
The local government helped foster that by taking a lenient approach to private lending, according to Huang Yasheng, an associate professor at the Massachusetts Institute of Technology’s Sloan School of Management. A previous credit squeeze in Wenzhou 25 years ago affected 200,000 lenders, resulting in 523 kidnappings and more than 30 deaths, according to a local government website.
As the clacking from a nearby shoe factory drifts through the window of his warehouse on Wenzhou’s industrial outskirts, Zhong tells how he relied on money lenders to build Blue Sky Pharmacy into a chain of 27 shops in just three years.
A doctor from a mountain village, Zhong borrowed money to pay medical bills he ran up caring for his wife who died at 23 of liver disease. After he remarried, to a woman with debts of her own from running a money-lending business, he opened up a pharmacy in Wenzhou to try to pay back their combined debt.

Network of Lenders

The couple took on more debt to fund their expansion, Zhong said. He couldn’t get money from the banks, he said, so he first borrowed from elderly neighbors from his home county.
Small and medium-sized businesses account for 80 percent of jobs in China, according to the country’s industry ministry. Yet they’re largely unable to get loans from banks, which prefer collateral to cash-flow, according to an Oct. 17 report by Sydney-based investment bank Macquarie Group Ltd.
By tapping into his hometown network, Zhong was the final link in a long chain of debt.
“For usual lending, Bank A lends to a customer and sees the cash flows,” said Tao, the Credit Suisse economist. “With informal lending, it goes from A to B to C, all the way to XYZ. Once it’s beyond C, you have no idea where this money went to.”
In Zhong’s case, the trail of debt can be traced to rows of four-story cement housing not far from the Wenzhou airport 40 minutes outside of town by car. Men play pool beside the ground- floor storefronts near a darkened mahjong parlor.

Cottage Industry

The residents turned money lending into a cottage industry, according to interviews with six of them. They built a lattice of interlocked credit, often borrowing from banks and other private lenders to arbitrage interest rates. Taking out bank loans at 1 percent a month, many lent out their cash for 2 percent or higher a month. They pocketed the difference to supplement meager income from odd jobs.
Sitting on a small stool, gray-haired Jin Xiaoyu fills a wooden box with the electrical clamps she makes to earn 10 yuan a day. Her left eye is the milky-white color of a cataract and she says she has difficulty seeing.
She lent Zhong 50,000 yuan and charged 1,000 yuan a month in interest, she said.
“I worry that I cannot get the money back,” Jin says. “I hope the government will help him out.”
Some used their housing as collateral. Among them was Wu Suihua, who borrowed against her five-story home, she says.

Taking Home Loans

“We don’t have much income,” said Wu. Her home is one building away from a Blue Sky pharmacy which opened a few months ago, selling ginseng and other traditional Chinese herbal remedies as well as Western medicines.
The collateralization of homes means Zhong’s problems may stretch back to the banks. One-third to a half of money used for private lending originally comes from banks, said Lu Ting, an economist with Bank of America Corp.’s brokerage unit.
Tightening cash flow for businesses continues to raise the risk of bank loans going bad, according to a statement from Wenzhou’s Financial Office given to Bloomberg News on Oct. 21. The current non-performing loan rate in Wenzhou is controllable and below the national average, it added.
The informal lending network worked until the summer of 2010 when some of Zhong’s villagers were unable to get new loans from the banks as government tightening kicked in, he said.

Rising Costs

Wenzhou’s businesses were already facing tougher times because of declining exports to Europe and the U.S. and rising labor costs, Chen Yuyu, associate professor at the Guanghua School of Management at Peking University, said. Minimum wages in Zhejiang province, where Wenzhou is located, have risen 19 percent in 2011 from last year, according to London-based Standard Chartered Plc.
Zhong needed cash to keep paying his suppliers, rent and employees. Scanning the local paper one day, he saw an ad for loans without collateral. He dialed the number and arranged to borrow 600,000 yuan for one month, from what Zhong called a “gaolidai,” a Chinese term for a loan shark. He borrowed again and started to just pay interest and roll over the principal, he said. Rates rose to 7 percent a month.
Black market rates have doubled this year, far exceeding the return of companies in Wenzhou that typically have wafer- thin profit margins, according to Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.

High Interest Rates

Curb lenders demand annual interest of between 20 percent and 40 percent or higher, many times the official lending rate of 6.56 percent a year, UBS’s Wang said. The rate rose as China’s new bank loans decreased, down to a 21-month low of 470 billion yuan in September.
Zhong thought his problems would be solved in August after two friends agreed to act as guarantees and he finally secured a loan from the local branch of Fuzhou-based Industrial Bank Co. It was for 15 million yuan at 1 percent a month, divided into two tranches. One of the guarantors put up his downtown apartment as collateral in exchange for 60,000 yuan a month from Zhong, he said.
There was a snag. By now, Zhong said he owed the “gaolidai” 4 million yuan. The first tranche of the bank loan mostly went to paying that debt. The lender said Oct. 20 he was no longer in the business when reached by phone, declining to comment any further.
The Industrial Bank’s Wenzhou branch wouldn’t comment on Zhong’s case.

Warehouse Mobbed

When word of Zhong’s shortfall spread, angry creditors converged on his warehouse demanding their money back, Zhong and villagers said. Zhong says he struggled to calm them down as they started tossing cups on the floor and grabbing boxes of medicines.
In September, the alarm spread across Wenzhou after newspapers reported businessmen had fled or killed themselves because they couldn’t pay debts.
“Everyone was nervous and insecure,” said the mustachioed Zhong, sockless in leather shoes, standing near a darkened conference room with a bust of Chairman Mao. “Panic was everywhere. Blue Sky is famous now — for owing debt. No one is going to lend me money.”

Lobster Dinner

Zhong’s problems are shared by many other business owners. A few weeks ago, a group of about 20 gathered in one of the marbled private rooms to feast on lobster and steak at Hai Yan Lou, a Cantonese restaurant across the street from the local offices of China’s banking regulator.
The mood was grim. They talked about the recent suicide of shoe factory owner Shen because he couldn’t repay debts, and the disappearance of another boss who owed them money, according to Yang Xi, the owner of a company that makes dyes for shoes and textiles, who was there.
Each man present downed a bottle of Moutai, an expensive brand of Chinese liquor made from sorghum, because they feared they may never be able to afford the luxury again, she said.
By October, the deteriorating situation in Wenzhou prompted the visit by the premier, which triggered a raft of initiatives to help private businesses.
“After Premier Wen’s visit, I sent text messages to friends all over the world that Wenzhou will be rescued,” Yang said.

Emergency Fund

China’s banking regulator said later it would let banks sell bonds to raise money for loans to small enterprises and tolerate higher rates of non-performing loans among other measures to encourage bank lending.
In Wenzhou, the local government set up an emergency 1 billion yuan fund. Its anti-loan shark campaign led to the Oct. 27 arrest of a couple suspected of illegally raising 1.3 billion yuan, according to the China Daily.
A few businessmen who had fled Wenzhou have returned since Wen’s visit, according to Zhou of the small business association. Others have been tracked down and arrested, according to the official Xinhua News Agency.
Analysts are trying to ascertain how effective the measures are and how widespread the fallout from Wenzhou will be across China. The city is now the country’s biggest source of private capital, marshaling about 800 billion yuan, equivalent to 2 percent of China’s total economic output, according to Ren of IHS Global. Money from Wenzhou is invested in everything from real estate in Dubai to coal mines in Shanxi province, in China’s northwest.
After a research trip to Wenzhou, Bank of America’s Lu said in an Oct. 25 report that the chances of a nationwide liquidity squeeze were low.

Broader Problems

Others see Wenzhou as symptomatic of broader problems, such as an over-reliance on investment to grow the economy that steers money toward state-owned companies, said Michael Pettis, the Beijing-based chief strategist at Guosen Securities Co.
“You can solve Wenzhou, but you’re simply transferring the problem someplace else,” he said.
Zhong, the pharmacist, says he’s filed a report to the local government hoping to benefit from the bailout plan.
He spends his days and nights in the warehouse of his crumbling dream. He’s sold off his BMW and lives in a company dormitory. His wife sleeps in one of their stores and they’ve sent their daughter to live at school.
Zhong recounted his night at the coffee shop.
Alerted to the incident by Zhong’s wife, a more sympathetic creditor came by demanding his release, saying the pharmacist owed him even more money. The ruse worked, Zhong said. His offer for a finger was declined.
He says he’ll probably still lose his business. He’s negotiating to transfer it to his 130 creditors. They would keep him on as a paid manager.
“My wife and I will probably have nothing left,” he said.
–Fan Wenxin and Shai Oster. Editors: Neil Western, Melissa Pozsgay.
To contact the reporters on this story: Fan Wenxin in Shanghai at wfan19@bloomberg.net Shai Oster in Hong Kong at soster@bloomberg.net
To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net
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Drastic situations warren drastic measures


“His lord said unto him, Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.”
 Matthew 25:23

 It has been decreed since the beginning of time when the invention of money separated the divide between the rich and the poor, the haves and the have not, but have we been ever accountable to GOD? Have people in high places been ever held accountable for the shepherds they lead? In these times where the allocation of scarce resources is threaten by the collapse of the financial markets, can we find a better solution without money? Can US and EU debt crisis be forgiven? Will confidence ever return to the financial markets? Will politicians ever learn to properly manage their country’s money? Do they ever care about the bottom 20% of their populations and create jobs for everyone? Only when Our Saviour comes with unlimited resources will HE have all the answers. 
The more critical EU problems is that it doesn’t have fiscal union. EU must amend its treaty to allow it member states to fail, but not letting them fail via EFSF bailouts with the ECB acting like the FEDs for the US to print more money when required. Debts can then be rewritten with longer tenures to ease short term borrowing requirements by issuing bonds which is guaranteed by the ECB instead of member states. Fiscal monitoring by IMF ensures member states adhere to reforms to allow them greater access to financing by ECB, the present situation is like a bottomless pit with no end with the EU divided, a concrete union with the political will to defend the euro come what may will confidence return to the financial markets. 
– Contributed by Oogle.

沃伦的断然措施激烈的情况下

他的主对他说:干得好又忠心的仆人在不多的事忠心,我会让许多事情标尺进入你的主喜悦

 马太福音25:23

 颁布以来开始的时候金钱发明分隔贫富之间鸿沟富人没有我们一直都向上帝负责一次他们带领牧羊人负责高的地方稀缺资源的分配威胁金融市场崩溃在这些时候我们可以找到一个更好的解决办法没有钱美国和欧盟的债务危机能否被原谅返回金融市场信心政客不断学习,以妥善管理自己国家的吗?难道他们永远关心最底层的20人口为每个人创造就业机会只有我们的救主无限的资源他将所有的答案

欧盟更关键的问题是,它没有财政联盟欧盟必须修改条约允许失败的会员国,但不是让他们美国联邦调查局多印钞票在需要时通过欧洲央行EFSF救助失败债务可以被改写为较长的任期发行这是欧洲央行不是会员国保证债券,以纾缓短期借贷需求货币基金组织财政监督确保成员国坚持改革,让他们更多地进入欧洲央行融资目前的情况就像一个无底洞没有结束与欧盟分为具体联盟的政治意愿捍卫欧元出现什么情况返回金融市场信心

提供者Oogle

Unravelling the secrets of this Universe

Posted: 28 October 2011 2110 hrs

PARIS – Scientists who threw down the gauntlet to physics by reporting particles that broke the Universe’s speed limit said on Friday they were revisiting their contested experiment.

“The new test began two or three days ago,” said Stavros Kasavenas, deputy head of France’s National Institute for Nuclear Physics and Particle Physics, also called the IN2P3.

“The criticism is that the results we had were a statistical quirk. The test should help (us) address this,” he told AFP.

On September 23, the team stunned particle physicists by saying they had measured neutrinos that travelled around six kilometres (3.75 miles) per second faster than the velocity of light, determined by Albert Einstein to be the highest speed possible.

The neutrinos had been measured along a 732-kilometre (454-mile) trajectory between the European Centre for Nuclear Research (CERN) in Switzerland and a laboratory in Italy.

Through a complex transformation, a few of the protons arrive at their destination as neutrinos, travelling through Earth’s crust.

The scientists at CERN and the Gran Sasso Laboratory in Italy scrutinised the results of the so-called Opera experiment for nearly six months before making the announcement.

They admitted they were flummoxed and put out the begging bowl for an explanation. The results have not been published in a peer-reviewed journal.

Since then, an open-access online physics review, Arxiv, has had scores of papers submitted to it.

Some point to perceived technical glitches, noting that only a minute flaw in measurement would have had the neutrinos busting the speed of light.

Kasavenas said CERN was making available a special form of proton beam until November 6.

The idea is to assess a modified measurement technique.

If this works, the technique will be used in a bigger, “highly important” experiment that will be carried out in April, he said.

“The idea with the new beam is to have protons that are generated in packets lasting one or two nanoseconds with a gap between each packet of 500 nanoseconds,” he said.

“We will be able to measure the neutrinos one by one, but to do this we need a beam that is a hundred times less intense than the previous one.”

– AFP/ir

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Unravelling the secrets of this Universe

“One day we will find out, how atoms of water can be transformed to wine, how to travel from one place to another just by transformation, the transformation of Jesus where the human body becomes as bright as light and totally a different matter, with the absolute knowledge of God. When I have the opportunity to study indepth, I will know if we are heading in the right directions, to unravel all the secrets of this Universe.” Contributed by Oogle.