Free Republic

The dwindling allure of building factories offshore “WHEN clients are considering opening another manufacturing plant in China, I’ve started to urge them to consider alternative locations,” says Hal Sirkin of the Boston Consulting Group (BCG). “Have they thought about Vietnam, say? Or maybe [they could] even try Made in USA?” When clients are American firms looking to build factories to serve American customers, Mr Sirkin is increasingly likely to suggest they stay at home, not for patriotic reasons but because the economics of globalisation are changing fast. Labour arbitrage—taking advantage of lower wages abroad, especially in poor countries—has never been...

Its politicians are failing to tackle the country’s real problems. Believe it or not, they could learn from Europe PESSIMISM about the United States rarely pays off in the long run. Time and again, when Americans have felt particularly glum, their economy has been on the brink of a revival. Think of Jimmy Carter’s cardigan-clad gloom in the inflation-ridden late 1970s, or the fear of competition from Japan that marked the “jobless recovery” of the early 1990s. Both times the United States bounced back, boosted on the first occasion by Paul Volcker’s conquest of inflation and on the second by...

Commodity prices are surging at a very early stage of the cycle SUBPRIME mortgages may have dominated the headlines in 2008 but high commodity prices played a significant part in the economic turmoil of that year. So it is striking to note that The Economist’s all-items commodity index is now even higher than it was back then. Admittedly, our index excludes oil, which is more than $50 below its 2008 peak. Nevertheless, at around $90 a barrel, oil is high enough to prompt petrol prices of more than $3 a gallon in America and record pump prices in Britain, where...

BUSINESS in China is about three things: volume, volume and volume. Or so many analysts believe. So as the revenues of Chinese companies soar, rosy forecasts abound. Goldman Sachs, an investment bank, predicts that the prices of the shares of Chinese companies trading in Hong Kong will shoot up by 30% next year. Nomura, another bank, says they will rise by more than 20%. Besides heady revenue growth, China bulls cite two reasons for optimism. Chinese firms are cheaper than they have been in the past and cheaper than similar companies in other parts of the world. Also, Chinese shares...

The charge-sheet against commodity speculators is flimsy ONIONS are an important ingredient in the history of commodity speculation. In 1958, after American growers moaned that speculators were behind see-sawing prices, legislation banned trading in onion futures. Now critics are stewing over speculators again, thanks to rising prices in everything from oil to metals and grains. Such is the turmoil speculators are believed to cause that Nicolas Sarkozy may use France’s presidency of the G20 to push for rules to curb their activities. Investors have certainly acquired more of a taste for commodities over the past few years. According to Barclays...

Preventing foreclosures won’t fix America’s housing mess. Encouraging banks to write down mortgages might AMERICA’S mortgage lenders are again at the centre of a scandal. This time the cause is not the recklessness of their lending, but the sloppiness with which they are dealing with the resulting defaults. Recent revelations suggest that many lenders rode roughshod over legal niceties to push delinquent borrowers out of their homes. Although banks claim the irregularities are minor, “Foreclosuregate” risks becoming a quagmire. Prosecutors across the country have launched investigations. Many politicians (though to his credit not Barack Obama) have called for a moratorium...

HE WAS supposed to be a shoo-in. Mike Castle, the popular former two-term governor and tiny Delaware’s sole representative in the House, was the odds-on favourite to win Delaware’s special election to fill the seat Joe Biden held for 36 years. But on September 14th, his Republican primary opponent, the tea-party backed Christine O’Donnell, won a surprising 53% of the vote. The perennial candidate was not taken seriously by Mr Castle, who refused to debate with her, or by the state Republican Party. Tom Ross, the chairman of the state GOP, described Ms O’Donnell as "not a viable candidate for...

International regulators are making progress on tackling too-big-to-fail banks TALK is cheap when it comes to solving the problem of too-big-to-fail banks. From the luxury of even today’s stuttering economic recovery it is easy to vow that next time lenders’ losses will be pushed onto their creditors, not onto taxpayers. But cast your mind back to late 2008. Then, the share prices of the world’s biggest banks could halve in minutes. Reasonable people thought that many firms were hiding severe losses. Anyone exposed to them, from speculators to churchgoing custodians of widows’ pensions, tried to yank their cash out, causing...

Fear of renewed recession in America is overblown; so is some of the optimism in the euro area SELDOM does the United States look at Europe with economic envy. The past few weeks, however, have been one of those rare phases. Concern about America’s stumbling recovery has been rising, just as anxieties about the euro area’s economy have faded. The dollar is the weakling among rich-world currencies . But Americans should take a little heart: it is too soon to despair about their economy. And Europeans should show a little caution: it is too soon to be sure that theirs...

FOR most of the past two decades the main measure of shipping costs has been used as a guide to what is happening to world trade. So the fact that the Baltic Dry Index—which measures the rates charged for chartering the giant ships that carry coal, iron ore and grain—has fallen by almost 60% in its longest streak of consecutive declines for nine years (34 days running as of July 14th) has won attention. Add in the fact that China’s imports of iron ore and coal fell in June by 6% and 8% respectively, and the Baltic Dry seems to...

ONE of the failures leading up to the crisis was the inability of regulators to understand the scale of the shadow banking system or its interconnectedness with the overall financial system. The Federal Reserve's emergency liquidity funding helped shine some light into the activity of these non-bank banks. But with the expiry of these facilities, the system is once again operating in the margins. Now a new paper by the New York Fed offers a detailed look into evolution and role of the shadow banking system and is recommended reading for anyone trying to understand exactly how these banks work....

The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, “shadow banks” are particularly important institutions. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, limited-purpose finance companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises. Shadow banks are interconnected along a vertically integrated, long intermediation chain, which intermediates credit...

Too much anger and too few ideas. America needs a better alternative to Barack Obama HAPPY days are here again for the Republicans, or so you might think. Barack Obama’s popularity rating is sagging well below 50%. Passing health-care reform has done nothing to help him; most Americans believe he has wasted their money—and their view of how he is dealing with the economy is no less jaded. Although growth has returned, the latest jobs figures are dismal and house repossessions continue to rise. And now his perceived failure to get a grip on the oil spill in the Gulf...

Tesco's successful succession shows that the advocates of diversity in the boardroom overstate their case SIR TERRY LEAHY, who announced that he will retire as Tesco's chief executive next March, is one of Britain's great businessmen. During his 14 years at the helm, Tesco has become Britain's biggest food retailer, its biggest private-sector employer, and one of its most innovative companies. Over and over again, it has anticipated shifts in consumer demand, providing smaller "Metro" stores, healthier food and "ethically sourced" products. Tesco has, rightly, tried to replace Sir Terry with a Sir Terry clone. Philip Clarke has had a...

JPMORGAN CHASE likes to refer to its balance sheet as a “fortress”. Unfortunately at least part of its supply of liquid funds may have been built using other people’s money. That is the conclusion reached by Britain's Financial Services Authority (FSA). It has fined J.P. Morgan Securities, an offshoot of the Wall Street banking giant, £33.3m ($48.5m) after concluding that clients’ funds from its futures and options business, that were meant to be ring-fenced, were in fact held as part of the general pool of funds within the firm. The sums involved were big, varying between $1.9 billion and $23...

ONE of the signs of growing risk aversion in recent weeks has been the steady rise in Libor, the rate at which banks borrow and lend to each other. The three month rate reached 0.5% today, the highest level since last July. This is nothing like the levels reached in the aftermath of Lehman's collapse. But it does indicate that investors are concerned about the willingess and the ability of governments to bail out banks. It is a very tricky issue, as the tortured negoations over the US finance bill have shown. Governments would much rather take actions that shore...

America’s shareholders find a voice to condemn undeserved compensation IT IS too soon to call it a trend, but the fact that America’s normally passive shareholders have voted against executive pay packages at two big companies within a week suggests that something is going on. The 54% of votes cast against the remuneration of Sanjay Jha, Motorola’s chief executive, at the phonemaker’s annual meeting on May 3rd, marked the first time that American shareholders had ever rejected a boss’s pay. Four days later they did it again, voting against the wages of Ray Irani, boss of Occidental Petroleum. Such expressions...

New data confirm that small firms are dragging on the job market EVEN as they heap scorn on big business, Americans and their congressmen retain a place in their hearts for small business. Which is fortunate, since small business need a little sympathy these days. Their travails, however, go some way towards explaining the puzzling weakness of job creation since the recession ended last year. The contribution made by small businesses to overall job creation is often exaggerated. They do indeed account for most new jobs, but they also account for most job losses. Unfortunately, reliable data that tracks their...

Once more unto the breach A new energy and climate bill appears in America's Senate. Does it have a chance? “KERRY-GRAHAM-LIEBERMAN”—it sounded so promising. One Democrat, one Republican and one independent (senators John, Lindsey and Joe) have been busily writing a new energy and climate bill taking in ideas from both sides of the partisan aisle. Alas, the unity was shattered last month when Mr Graham, the Republican, refused to come to the bill’s press launch, after hearing that the Senate would consider immigration first. Then the spill in the Gulf of Mexico fouled the waters: one of the bill’s...

ON THURSDAY at 2.38 pm New York time the Dow Jones Industrial Average was down by 360 points. By 2.51pm the index was down by 900 points. In the space of minutes, a volatile week for American stockmarkets had turned into a horrible one, with Wall Street seeing its biggest intra-day fall ever. The index recovered its poise later in the day, but still closed 3.2% lower on the previous day, its biggest points drop since February 2009 and its sharpest percentage drop since April 2009. Some of the carnage was apparently caused by technical errors. Huge and unexplained falls...