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  • China's Growing Debt

    China's economy continues to thrive compared to others around the globe. The growth rate for the third quarter was near 9%. Great returns for 2009, and the near future looks even brighter to most economists and investors. But at Fortune/CNNMoney.com , Bill Powell writes of some concerns over China's escalating debt. According to Powell, the Chinese government has issued massive loans to boost infrastructure, manufacturing, and real estate. The loans total $1.27 trillion, "up 136% from the same period last year." According to a recent analysis by Monaco-based hedge fund Pivot Capital Management, China's total lending reached 140% of GDP at midyear. That kind of lending makes China an "outlier" compared with other BRIC (Brazil, Russia, India, and China) countries -- and is already well beyond the levels that "have led to sharp and brief credit crises in the past," the Pivot Capital report contends. Moreover, an increasing number of Chinese loans are being funneled into projects unlikely to generate an attractive economic return. From 2000 to 2008 it took just $1.50 in new credit to generate $1 of GDP growth. Now that ratio is 7 to 1. (In the U.S., just before the financial crisis hit, the ratio was only 4 to 1.) That's because the loans are creating huge amounts of manufacturing capacity -- which is unneeded in the bears' view. China's spare capacity in the cement industry, for example, equals the total annual consumption in the U.S., Japan, and India combined. So where will the growth come from? China's export markets are tapped out. Its domestic consumption, stalled at around a third of GDP, hasn't yet started to rise significantly. Additional manufacturing investment would be crazy, leading arguably to a global deflationary bust of epic proportions. Read the full article here .
  • Five-year-old's Debt and Mortgage Woes

    Here's a great story of a 5-year-old boy learning lessons about long term debt, mortgages, and consumption, from a video game, as told by the 5-year-old's father: Ian Bogost . Bogost teaches at Georgia Tech, designs video games, and writes about the power of vidoe games. He says his son's experience with the game Animal Crossing turns the conventional wisdom about video-games-as-escapist-entertainment on its head: You can watch Bogost's full speech from the X Media Lab in Sydney, Australia, here , thanks to the Australian Broadcast Corporation .
  • Peter Peterson on America's Debt Problem

    Peter Peterson is concerned about the future. He's decided to donate 1 billion dollars to the economic think tank that now bears his name--the Peterson Institute for Ineternational Economics --to battle what he sees as the nation's biggest challenge: debt. Here's what he wrote earlier this year in Newsweek to explain his decision: For the first time in my memory, the majority of the American people join me in believing that, on our current course, our children will not do as well as we have. For years, I have been saying that the American government, and America itself, has to change its spending and borrowing policies: the tens of trillions of dollars in unfunded entitlements and promises, the dangerous dependence on foreign capital, our pitiful level of savings, the metastasizing health-care costs, our energy gluttony. These structural deficits are unsustainable. Herb Stein, who served alongside me in the Nixon White House as chairman of the Council of Economic Advisers, once drily observed, "If your horse dies, I suggest you dismount." And yet, we keep trying to ride this horse. The 81-year-old businessman's list of accomplishments is long, and includes founder of The Blackstone Group; Secretary of Commerce; and head of the Council on Foreign Relations. He spoke with Charlie Rose about the economy and about the national debt. Here are some excerpts: You can watch the full interview here . And read Peterson's Newsweek essay, Why I'm Giving Away A Billion Dollars , here .
  • Visual Economics: Debt to GDP

    Visual Economics is a good site for graphics and maps that neatly synthesize economic data. Here, for example, is their map showing national debt as a percentage of GDP. Just as with any household or business, red is bad, black is good. Take a look :
  • Online Quiz to Test Small Business Strength

    Business professors Jeff Cornwall of Belmont University, and George Solomon , of George Washington University, have created a new interactive quiz to, as Cornwall puts it, "help entrepreneurs assess their susceptibility to the recession." The Small Business Threat Index is up at Entrepreneur.com . Click here to take the quiz.
  • Mainstreet.com Ranks States' "Happiness"

    It doesn't exactly fit the methodology of happiness indexes from established institutions like the World Database of Happiness at Erasmus University in Rotterdam, which has long shown that economic stability is merely a factor in happiness, but Mainstreet.com has come out with a "Happiness Index" of states. The Mainstreet list is based on non-mortgage debt, per capita foreclosures, and unemployment. The lower the better in all categories. So while sociologists, psychologists, or just about any social scientist who researches the subject would take issue with the assertion that this is a happiness index, it is a useful list. And it reveals some regional trends. The big winner is Nebraska. And neighboring Iowa and Kansas come in 2nd and third, respectively. California, Florida, and Oregon bring up the rear. You can find the full list here . And watch a report on the index from ABC here .
  • 'Economic Impact of Increased Savings' from McKinsey Quarterly

    American consumers took on debt at a rapid rate to start the 21st Century. Take a look at this chart of houshold debt from the McKinsey Quarterly : So when the bubble burst, what happened? Americans stopped borrowing and started saving. Look at the fall in borrowing--starting just before the global economic crisis hit last September: The charts are from a new article by Charles Atkins and Susan Lund , consultants for McKinsey. In The Economic Impact of Increased US Savings , they write that the current trends could be part of a dangerous cycle: How far these trends will go is a critical economic uncertainty in the months ahead. The economic impact of today’s deleveraging will depend on how it unfolds—through income growth, higher savings, or some combination of the two. If incomes stagnated, for example, households could deleverage only by saving more. Every percentage point reduction in the debt-to-income ratio would require nearly a one percentage point increase in the savings rate. The US personal savings rate reached 5 percent in January, 2009. If this level prevailed and incomes didn’t grow, this would reduce the household debt-to-income ratio by five percentage points—which still wouldn’t be enough to restore the levels of indebtedness prevailing in 2000, before borrowing started to accelerate. But if incomes rose, households could both reduce their debt burden significantly over time and continue to consume. If US incomes grew by 2 percent a year, for instance, households could reduce their debt-to-income ratio by as much as they would in the scenario above—but with a personal savings rate of only 2.3 percent. Read the full article here .
  • Frontline on American Debt: 'Ten Trillion and Counting'

    Frontline 's latest documentary focuses on debt. Ten Trillion and Counting "traces the politics behind this mounting debt and investigates what some say is a looming crisis that makes the current financial situation pale in comparison." It aired last night on public television stations around the country. Here's the promo from PBS: The full episode is now available at Frontline's Website, here. And the site includes a set of supplementary analysis and interviews (both in video and transcript form). It may not all contain the depth necessary for understanding the complexities of the debt buildup over the last three decades, but it provides great breadth of Washington voices. Noted economists, members of the Clinton and Bush administrations, and key members of Congress all share their thoughts. For example, New Hampshire Senator, and short-time Commerce Secretary nominee, Judd Gregg on the debt threat: The way I describe it is this: Except for a terrorist getting its hands on a nuclear weapon and exploding it somewhere in the United States, [debt] is the biggest issue we have. We are facing a financial catastrophe of inordinate proportions, because we have on the books obligations which exceed the net worth of the American public. In other words, there is $66 trillion of debt out there, and we don't know how we're going to pay for it. ... The net worth of the United States is $44 trillion, so ... we're essentially bankrupt as a country even though we don't admit to it. And David Walk er , U.S. Comptroller from 1998-2000, on the likelihood of the US's credit bond rating dropping: I absolutely can see the United States losing its AAA credit rating in the future if it doesn't get its own financial house in order. In fact, both Standard & Poor's and Moody's have already issued a shot across the bow, saying that that AAA credit rating is at risk. There are four key factors that led to the current subprime crisis that exist for the federal government's finances: a disconnect between who benefited from policies and practices and who paid the price and suffered the losses; inadequate transparency as to the nature and extent of the real risk; overleverage, over-reliance on credit ratings, and not enough attention on cash flow; and a failure ... of both private-sector and government risk-management oversight mechanisms to act until there was a crisis. So those are four common denominators. There are three big differences. Number one, the American government's financial problem is not as immediate, which is good news; we have time to act. Secondly, it's much bigger. And thirdly, nobody is going to bail out America. We need to solve our own problems, and the time to start is now. Visit the Ten Trillion and Counting site from WGBH and Frontline here .
  • Jeff Bezos, The Kindle 2, and Amazon's "Seamless" Approach

    Amazon continues to zag as other companies zig. Or at least it has kept profits and sales going strong as others fall short in this recession. It is a remarkably different story from 2001, when the company's stock plummeted and people pushed for company founder Jeff Bezos to resign as CEO. Now Bezos is the darling of business media, and he's making the rounds to talk up the launch of its Kindle 2 e-reader . Bezos went on Charlie Rose to talk about the Kindle and the company's approach to its customers. In the interview, Bezos stresses the need to focus on customers rather than competition, and perhaps that helps explain the company's success. Watch the full interview here . Om Malik , writing at Fortune online and at Gigaom.com , picked up on Bezos's use of the word "seamless." He wasn't talking about the device itself, of course, but the experience of the customer that uses it. Whatever you think about the Kindle , Bezos' choice of that word goes right to the heart of Amazon's own strategy, and the reason why the company, its operations and its stock have held up so well in the past few months. Everyone knows that Amazon's (AMZN) e-commerce site succeeded because its interface was intuitive to the point of being completely natural. What isn't discussed as much is the ethic behind that success: Simplicity is hard. Just as Amazon went to great lengths and expense to make the Kindle experience seamless, it has gone to a considerable amount of trouble to adhere to what is a very simple corporate strategy: Make it easy for the customer, and make it cheap. Some may bicker with the Kindle 2's $360 price tag as cheap, but the device is selling, so at the moment it is hard to argue with Bezos about that. One way for companies to keep prices down is to watch the bottomline in operations and control its own debt. In this case, Malik points out a bit of news that hasn't been getting so much attention in the Kindle craze: Amazon is set to go nearly debt free by the end of this month. By March 27, Amazon plans to redeem the outstanding principle on its convertible subordinated notes due next year. Amazon offered the notes in 2000, and they accounted for $335 million of the company's long-term debt at the end of 2008. After the notes are redeemed, Amazon will have only $133 million in long-term debt outstanding. That's a far cry from the $2.8 billion in debt it held six years earlier. Read Malik's Why Amazon is Bucking the Trend here . And for a different sort of interview with Bezos, watch this clip from The Daily Show . The Daily Show With Jon Stewart M - Th 11p / 10c Jeff Bezos Daily Show Full Episodes Important Things With Demetri Martin Political Humor Joke of the Day