Archive for the ‘Abdul Aziz’ Category.

Conversations with Abdul Aziz 9

AA: Why so long since the last time?

KH: I was in Montreal for a conference last week, landed in time for the coldest temperature in years. But the snow and the ice on the trees were pretty. Since I got back, it seems that the political climate is warming up in France. The Greeks have a responsive audience here. Everyone says there will be a big fight with Sarkozy in the spring. In the meantime, people have seized on his attempt to remove commercial ads from the public television stations. It’s funny really, the left combining for the right of public TV to sell advertising; but they see it rightly as Sarkozy paying off his chums in the private channels and weakening the revenue base of the public alternative. The whole mechanism of the decision has been exposed to view and the pretense of due procedure gets more ridiculous by the day.

AA: You mean people are going to take to the streets like the Greeks?

KH: Well, one scenario is that the railway men will strike and this will provoke a general strike, with or against the railway men. A passenger in Lyon tried to strangle a SNCF employee last night. Tempers are short. The universities are a powder keg, they have been messed about so much. The professors in some places have refused to hand in marks to the administration, while giving them to the students. Obviously they want the students out on the streets. I think the government knows this; certainly they have shown signs of caving in recently. We probably have the Greek to thank for that. Continue reading ‘Conversations with Abdul Aziz 9’ »

Conversations with Abdul Aziz 8

AA: I told you Obama is a hawk. Look at his security team. No wonder the left can’t figure out what is happening. That’s why they are calling him an Uncle Tom.

KH: Well, I can see that some could be worried that this is a recycling of the same old Washington elite. Who speaks for the little people in this lot? I guess the answer is Obama himself. He does keep stressing that they are there to do the job he was elected for. He means to change things alright.

AA: Are you telling me he is a revolutionary?

KH: There have been four phases of the American revolution, if not four revolutions: Washington, Lincoln, Roosevelt and Obama. Obama thinks he is Lincoln on a world-scale, not just for the US. That means the modern equivalent of the civil war, a lot of bodies. His ‘security team’ reflects what he learnt from LBJ about pissing from inside and outside the tent. The criticism he is getting from the left reminds me of a hot argument I had with an American student after seeing Forrest Gump together. I liked it, she thought it was dissing everything she believed in. Obama really intends to get beyond the culture wars of the 60s that spawned his mother…and him.

AA: So he’s not a liberal in the standard American sense, despite his voting record as ‘the most liberal’ senator… Continue reading ‘Conversations with Abdul Aziz 8’ »

Conversations with Abdul Aziz 7

KH: You’re looking glummer than usual. What is it? Oil in the $50s?

AA: No, we can hardly expect anything else with the world economy heading for the next Great Deflation, if it isn’t already there. I just spent a week in Riyadh. You know, the world looks different from there — four or five hours flying time from London, Moscow, Nairobi and Mumbai. America seems almost as far away as Australia. It feels like the centre of the world, now that the North Atlantic is losing its grip over the rest of us.

KH: So that makes you sad?

AA: No, not in itself. It’s just that I can’t see the transfer of power eastwards being peaceful. The Americans have launched their new Africa military command from the Sahara to the Horn and Bush has turned Somalia into an inferno. The pirates hijacked a Saudi tanker and the Indian navy is steaming in, the Europeans want to send gunships to keep the Suez/Aden route open… They just blew up a village in order to claim the scalp of a terrorist born in Birmingham. Pakistan is a mess, the Taliban control Peshawar. And we are not even talking about the sixty nukes yet; but I did read Global Trends 2025,  put out by the ‘National Intelligence Council’. It has headlines like “The potential for conflict will increase owing partly to political turbulence in parts of the greater Middle East”; and we know where that is, Afghanistan/Pakistan, a place that just happens to have Russia, India and China as neighbours, not to mention the Islamic world. Langley is zeroing in on Obama’s top priority and the rest of us had better take cover. Continue reading ‘Conversations with Abdul Aziz 7’ »

Conversations with Abdul Aziz 6

KH: Where have you been? I wanted to talk about Obama’s victory.

AA: India, Brazil and South Africa. You’ve heard of IBSA? We are looking to invest in South-South economic co-operation. I’ll tell you about it some time. So why are you so keen on a US election post-mortem?

KH: Well, I wanted to tell you that I won my bet. In the summer I put a thousand pounds with a London bookmaker at 5-1 on an Obama win by more than 150 electoral votes. It ended up with me wanting one of the last three states to declare — North Carolina, Indiana and Missouri. He won two of them and I was well clear.

AA: Why were you so sure he would win by a landslide?

KH: First, I think any Democrat would have beaten the Republicans big after eight years of Bush. The mid-term elections of 2006 showed that the tide had turned. It’s a simple matter of jobs, housing, the war, health, education, the greedy and uncaring rich. Unlike many American liberals, I actually believe in the good sense of most Americans. Then I appreciated the power of Obama’s machine for getting out the vote, the first really to take advantage of the internet; and his political team hardly put a foot wrong. I have been studying American politics for half a century now and I knew that the narrow Bush wins of 2000 and 2004 were exceptional. The electoral college system exaggerates differences in the popular vote: thus Obama won by a bit more than 5% of the vote, rather less than his lead in the tracking polls, but his electoral college margin is almost 200.

AA: So what are you going to do with the money? Continue reading ‘Conversations with Abdul Aziz 6’ »

Conversations with Abdul Aziz 5

KH: Well, this has been a big week for relations between Britain and the Gulf states. I see that Gordon Brown, self-appointed saviour of the world economy, has made a lightning visit to Riyadh to persuade you lot to bail out the IMF. He calls it a “Global crisis fund”, sounds like the begging bowl to me.

AA: Yes, having a lot of spare cash in the Great Deflation is terrific for PR. We’ve been putting it around that we can help the Brits go green, some of our neighbours have bought a chunk of Barclays. It’s all go.

KH: Just run that thing about deflation past me again.

AA: In an inflation cash loses its value, but in a deflation, there’s not much money around, so prices fall and anyone who has cash can pick up stuff cheap. The people with cash right now are the exporters to the US, in particular Japan, China and countries like Korea. In order to keep the market for manufactures going, they paid for the US current account deficit by transferring their surpluses into T-bills, US Treasury paper, even though the fall of the dollar made that look unprofitable for a time. The oil exporters made huge windfall gains from the price rise this year and a lot of the money went the same way. Of course we have been looking for other outlets, like the euro, and we even floated the idea of an Islamic gold dinar. But, after the collapse of real estate and then the stock market, everyone rushed into dollars and US bonds. With all titles to property going South (houses, shares and now commodity futures too), this puts us and the other net exporters in pole position to call the shots in the next stage. Continue reading ‘Conversations with Abdul Aziz 5’ »

Conversations with Abdul Aziz 4

KH: I see that OPEC are going to cut oil output by 1.5 billion dollars a day from November 1st.

AA: Well, now we know that the world economy is going through a deep deflation, it would be crazy to do otherwise. I hope you noticed that we didn’t propose any cuts when the oil price started falling a month ago. That’s because we knew the commodities boom was an investor-driven bubble, successor to the dot com boom and  Greenspan’s housing bubble. Oil, gold, wheat — it was all hot money. I laughed when I read those newspaper reports about how increased demand in China and India had pushed these things to a new level of scarcity. Oil going to $200, global starvation, gold replacing the dollar, that sort of thing. The hedge funds took a ride on the bull market for commodities and look what has happened to them. But now is different. The money has gone up in smoke and the markets are starved of cash, not to mention credit. So how much oil are people going to be able to buy? The price will go through the floor unless we cut back production. It could go through the floor, as it is. Continue reading ‘Conversations with Abdul Aziz 4’ »

Conversations with Abdul Aziz 3

KH: Well, Abdul, what’s your position on these crazy markets?

AA: I’m with Warren Buffet. I love that guy. Did you see his oped piece in the New York Times today, ‘Buy American. I am‘? It’s not just that I agree with his prediction that US stocks are going to bounce back soon, he has discovered a mother lode of pithy sayings: Be fearful when others are greedy, and be greedy when others are fearful. If you wait for the robins, spring will be over. Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.” I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” On top of which, he has such a good grasp of the economic history of the twentieth century. Maybe if Obama is going to be the next FDR, Buffet can do the fireside chats. He’d be wonderful at it. That way, he can be his own self-fulfilling prophecy, just like he always has been.

KH: I came across his Berkshire Hathaway annual report for 2002 not long ago. It’s got a sensational expose of derivatives, written in such clear language. But that’s enough of a puff for Warren B. I wanted to ask you, if you are bullish on America, how you think this economic crisis will affect the balance of power between the leading countries of the world and some of the smaller ones? Continue reading ‘Conversations with Abdul Aziz 3’ »

Conversations with Abdul Aziz 2

KH: Ed points out that the crisis is essentially one of debt deflation. Another way of saying this perhaps is that the world is deleveraging fast. He wants us to acknowledge that there are winners and losers in a deflation, just as there are in inflation.

AA: That reminds me of Keynes’s great piece in Essays in Persuasion (1931) about who wins and who loses as a result of inflation and deflation. In the first case, creditors and people on fixed incomes lose and debtors win; in the second, property holders (shares, real estate) lose and anyone with cash can pick things up cheaply. What is interesting about this crisis is that until very recently the central banks were worried at least as much about inflation as deflation. This was because of the temporary bubble in commodities after the housing market crashed. The Europeans kept interest rates up for too long and now it may be too late. That’s because economic policy has been driven by the banks for three decades and they worry most about inflation. It still seems like the banks are calling the shots. The Wall Street bailout was at first intended just to redeem their bad paper without any consideration of homeowners, for example. Now the story is all about which bank is going to fold next and will they all be nationalised? Krugman has a fairly technical paper where he argues that the issue is one of capital shortage, not liquidity (buying and selling). Several commentators have been saying something similar, that what is needed is a major injection of capital. Continue reading ‘Conversations with Abdul Aziz 2’ »

Conversations with Abdul Aziz 1

These reports are edited versions of exchanges held via Skype, email and face-to-face, taken from a conversation that began in early 2007. Abdul Aziz (not his real name) is a minor Saudi royal with a degree in economics from a Midwestern university who now lives in London where he manages some of his immediate family’s wealth. Keith Hart is a retired British academic (not an economist, but with a lifelong interest in the economy) who lives in Paris and first encountered AA in Knightsbridge while visiting his bank. They meet occasionally for tea at Harrods.

The deepening financial crisis of late September 2008 persuaded KH to publish extracts from this conversation as a blog. Continue reading ‘Conversations with Abdul Aziz 1’ »