This is what we found interesting from the current issue of the “The Economist” (February 6th-12th February 2010).

Preface:

There are three risks that can be identified in the Global Economy. The The Economist has covered two of them. The third one has been covered in The Times of India dated February 6^th 2010 on page number 21.

The Economist:

 I.  Political Imbalance: In the globalized world reciprocity is the most important concept.   However, ignoring reciprocity seems to be the predominant today:

1. “ China has been throwing its weight around. It played a central and largely unhelpful role at the climate-change talks in Copenhagen; it looks as if it will wreck a big-power consensus over Iran’s nuclear programme; it has picked fights in territorial disputes with India, Japan and Vietnam. As gatherings of all sorts, Chinese officials now want to have their say, and expect to be heeded.” (9)
2. “ As China has opened its economy since 1978, it has been frantically engaged in catching up with the rich West. That has led to the idea, even among many Chinese, that it would gradually become more ‘Western’. The slump in the West, however, has undermined that assumption. Many Chinese now feel they have little to learn from the rich world. On the contrary, a ‘Beijing consensus’ has been gaining ground, extolling the virtues of decisive authoritarianism over shilly-shallying democratic debate.” (9)
3. “ China wants the power due a global giant while shrugging off the responsibilities, saying that it is still a poor country. It must be encouraged to play its part—for instance, on climate change, on Iran and by allowing its currency to appreciate. As the world’s largest exporter, China’s own self-interest lies in a harmonious world order and robust trading system.” (9)
4. “ Some see confrontation as inevitable when a rising power elbows its way to the top table. But America and China are not just rivals for global influence, they are also mutually dependent economies with everything to gain from co-operation. Nobody will prosper if disagreements become conflicts.” (9)

II. Global Deficits: “ Neither the president nor the Congress shows any sign of knowing how to tackle the deficit.” (10)

1. “ …The eye-popping $1.56 trillion deficit for the current fiscal year previewed in this week’s budget (see page 33), to be followed by a further $1.27 trillion in fiscal 2011 (which begin on October 1^st), ought mostly to be seen as a consequence of the downturn that Mr. Obama inherited.” (10)
2. “ What is truly worrying, though, is the medium-term outlook. Mr. Obama’s budget reveals a road-map to fiscal catastrophe. At no point over the coming decade will the deficit be below 3.6% of GDP; and after 2018, it starts rising again.” (10)

The Times of India:

III. Agriculture, Climate & Demography: “ In just 60 years, world may lose all its topsoil” (21)

1. “ Fertile soil is being lost faster than it can be replenished and will eventually lead to the ‘topsoil bank’ becoming empty researchers told an Australian conference.” (21)
2. “…Farming soil could run out within 60 years, leading to a catastrophic food crisis and drastically higher prices for consumers reports the Telegraph”. (21)
3. “ Chronic soil mismanagement and over farming causing erosion, climate change and increasing populations were to blame for the dramatic global decline in suitable farming soil.” (21)
4. “ Soil is also a valuable store of carbon and can release the greenhouse gas if it is ploughed or dug up.” (21)
5. “ Latest forecasts predict the world’s population will grow from 6.8 billion to more than 9 billion by 2050, placing even further pressure on food production and farming.” (21)

The Economist:

Letters: Principles of Banking: (14)

1. “  No amount of regulation will ever replace common sense principles for banking. These are namely customer deposits first, prudent diversified lending second, allied with strong buffers of equity and ample tangible liquidity. All those principles and many more too, Rae explains clearly in his book as well as urging that ‘in banking being cautious is one of the cardinal values.’ I commend bankers, regulators, politicians and shareholders to read Rae before setting off from base camp Basel, otherwise they will find that by the time they reach the summit, their view of banking although appearing to have changed, has in reality been much as it always was. John Perry, Executive director, HSBC Bank Middle East, Saint Helier, Jersey.” (14)

Buttonwood: ‘Stimulating debate’ (73)

1. “ That rally seemed to be dependent both on extraordinary stimulus measures by governments and central banks, and on a vigorous economic recovery. But both cannot co-exist for long: either the recovery will not last or, if it does, the stimulus will be taken away.” (73)
2. “ …Withdrawal of even small parts of the stimulus packages can send an economy back into the doldrums.” (73)
3. “  The stimulus may have prevented the global economy from slipping into depression. In the medium term, however, academic studies suggest that higher government spending leads to slower economic growth.” (73)
4. “ …The packages have not really dealt with the problem of excessive debt, but merely transferred it from the private to the public sector.” (73)
5. “ The authorities face a dilemma. Reduce the stimulus now and they risk plunging the economy back into recession, as happened in America in 1937 and Japan in 1997. But leave the stimulus in place for too long, and they risk damaging long-term growth prospects.” (73)