Asia News: Pockets of rot
Dubai World's collapse is not too surprising - unless you are an HSBC executive; its public excesses were only one early indicator of what would surely follow. But its failure raises the question of where else are such rotten, overblown economic fantasies waiting to disintegrate. We can start with China, then London ... Martin Hutchinson

Asia Times: Possible October surprises
The inflation that might be expected in the United States from unprecedented expansionary monetary policies has failed to appear, while huge budget deficits have yet to produce higher interest rates. Far from being signs of a new economic paradigm, this merely means new bubbles are forming. - Martin Hutchinson

Asia Times: Wrong Swiss city
New Basel bank accounting guidelines fail to address the fundamental problems that helped to get the financial system into its present mess. Something much more stringent, a Geneva convention, is required, with the aim of preventing the banking system from destroying itself. - Martin Hutchinson

The return of Thomas Mun
By Martin Hutchinson

China's recent announcement that it would use its US$2 trillion of foreign reserves to boost its companies' overseas acquisitions tells us that its economic beliefs are neither those of Adam Smith, nor of Karl Marx, but of the 17th century mercantilist Thomas Mun. It is becoming clear that in economics, unlike in "hard" sciences, old belief systems never die.

Mun (1571-1641) wrote a classic magnum opus England's Treasure by Foreign Trade. Published only after his death in 1664, it was nevertheless very influential. Mun had been a director of the East India Company, and, unlike earlier theorists, believed that foreign trade was beneficial. However, he didn't hold with any high-faluting nonsense like comparative advantage or maximization of global economic welfare. For Mun, the purpose of foreign trade was to export more than you imported and, consequently, amass a huge store of foreign "Treasure," which you could then use to found colonies that would take control of natural resources.

To further this objective, countries should: cut back domestic consumption as far as possible; increase the use of land and other domestic resources to reduce imports; encourage the export of goods made with foreign raw materials; and export goods with price-inelastic demand because profits would be greater.

Mun's theory made sense in the 17th century economic jungle - and today it obviously makes sense to China. The country's currency, the yuan, is undervalued, so exports consistently exceed imports. Domestic consumption is kept low and savings high, both of which suppress imports. In industries such as automobiles where consumer demand is inevitable, foreign manufacturers are forced into domestic joint ventures, so that domestic manufacturers can be developed to replace imports. Domestic agriculture and resource extraction efforts are intensive.

China has set up free-trade zones, in which foreign parts are assembled into goods that are then exported. Finally, the country has amassed a gigantic store of $2 trillion of "Treasure," which is now to be used to assist in foreign acquisitions. Those acquisitions are not to be on Wall Street, as Prime Minister Wen Jiabao helpfully explained, but in natural resources, where China can assure itself of exclusive raw materials supplies for decades to come.

But, what if no one wants to buy your products?

Martin Hutchinson, Only the money is cheap

THE BEAR'S LAIR
Only the money is cheap
By Martin Hutchinson

M. Hutchinson, Sorry, I wasn't pessimistic enough

Sorry, I wasn'tpessimistic enough
Early forecasts of declines in US house prices and of mortgage bad-debt losses have fallen far short of the mark and a far grimmer picture is developing. Losses to come are probably large enough to wipe out the banking system and failure of any one major house could be sufficient to bring down the world economy. - Martin Hutchinson

ATimes columns on the current economic mess

CREDIT BUBBLE BULLETIN
'No regrets'
Commentary and weekly review by Doug Noland

THE BEAR'S LAIR
Spirals of death
By Martin Hutchinson

Economic hell to pay
By The Mogambo Guru

3 from Prudent Bear

Featured Commentary - Jun. 18
by Ed McCarthy
Prosperity today at the cost of tomorrow's growth

Guest Commentary - Jul. 19
by Bob Hoye
Chaning credit, changing times

Mid-Week Analysis - Jul. 18
by Chad Hudson
Will earnings justify market rally?

See also The Bear's Lair - Jul. 16
by Martin Hutchinson
Sometimes it’s not just a cycle