Days like yesterday make you wonder whether all the hand-wringing
over the global economy and financial system is misplaced. Perhaps the
glass really is half-full. If nothing else, IBM's earnings illustrate
the hidden strength of corporate America despite the excesses of its
financial industry.
The latest tolling bell that the global
credit crunch may be getting worse is the report that bankers are
starting to question the accuracy and reliability of LIBOR, the
benchmark interest rate for most global lending.
It seems so
many bankers are in dire straits about how little confidence they have
in each other's wherewithal that they don't believe their colleagues
are telling the truth about how high their borrowing costs are really
going.
This can't be good news for global credit and suggests
that spreads over LIBOR, whether accurate or not, will rise to reflect
the new perceived risk in the benchmark itself.
I still subscribe
to the belief that the US-led Western system of persistent profligacy
is deteriorating and doing so in favour of savings-rich, emerging
middle classes in East Asia and Eastern Europe and commodities-rich,
emerging middle classes in areas like Russia and the Middle East.
The
dollar continues its unrelenting decline - it has hit a new record low
against the Euro - and US economic data continue to point downward. The
enduring profitability of corporate America is due, in part it seems,
to its own diversification into these new markets. The Malthusian in
me, however, wonders if the food price inflation (and inflation for
other scarce resources) we're seeing isn't a warning that neither the
markets, nor the Earth, can sustain a world in which everyone is middle
class. By definition, it seems, wealth only exists relative to broad
relative poverty. In a world of increasing wealth, therefore, we are
all beggars.
The good news, or bad news if you're a Malthusian, is that Bush has
apparently finally come around on global warming and is now proposing
that the US join the rest of the industrialised world in trying to cap
emissions. Malthusians will consider this gesture an empty one as long
as the new industrial powers, China and India, refuse to sacrifice
their own growing affluence to reduce growth in their own emissions.
The US could end up shouldering costs related to greener production
with the gains to be made by the developing world, with the
environmental impact netted out. However, it also was reprehensible
that the US had not taken the lead on this. Now if only China and India
would realise that growth at the rate they're now emitting will not
increase the well-being of their populations much at all.
I doubt that will have much impact on us here in the Gulf.
The
new affluent will require more and more oil. It seems counterproductive
to be too sceptical of the region's boom, the property bubble not
withstanding. While there are undoubtedly excesses in property lending
and very likely the creditworthiness of borrowers may not be as solid
as balance sheets might indicate, the cushion of oil revenues buys the
region a considerable margin for accounting errors.
