A6 Saturday, March 21, 2015
Opinion BusinessMirror
editorial
A new kid in town
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NCE upon a time, there was this person whom we have probably all met, best described as a Big-Man-On-Campus. He was tall, handsome, strong and rich. Everyone wanted to be his friend, and gain his attention and goodwill. He was a relatively nice guy who helped people out but expected a little extra respect, and also expected others to agree with him and do what they were told. Then, one day, a skinny kid from faraway showed up. He was not very refined, and did not know the local customs and the way things were supposed to be done. He was not strong, handsome or rich. But he was smart, and worked very hard to get ahead. Eventually, people started paying more attention to the new kid and, over time, some, if not many, started to be his best friends. Finally, the Big-ManOn-Campus took notice, and realized that he was not as popular or influential as before. In fact, nowadays, his “best friends” are saying “yes” to his face, and then hanging out with the skinny kid, who is not thin any longer and is much more rich and powerful. On October 24, 2014, a signing ceremony was held in Beijing, China, formally recognizing the establishment of the Asian Infrastructure Investment Bank (AIIB). Sharing the dais with Chinese President Xi Jinping was Russian President Vladimir Putin. There are 33 founding members of the AIIB, from Bangladesh to Vietnam, and including the Philippines. Invited to join were also several European nations. The AIIB is a direct competitor to the American-led World Bank and the International Monetary Fund, headed by the Europeans. The United States made it clear in backroom talks that it would not be happy to see countries outside the Asian sphere of influence participate in the AIIB. It would not be in their best interest to join the AIIB. But now, nearly six months later, after having been told directly by US Secretary of State John Kerry on his recent visit to Asia not to join, Australia is quietly joining the AIIB. Further, France, Germany and Italy, as well as the United Kingdom, India, Singapore and New Zealand, have now all agreed to join China’s development bank. An Australian newspaper described its country’s decision this way: “Make no mistake—all this represents a colossal defeat for the Obama administration’s incompetent, distracted, ham-fisted diplomacy in Asia.” That is a pretty negative comment to be making about the former Big-Man-On-Campus. The US has voiced its strong concern about the “governance” of the AIIB as its motive for encouraging other nations to go slow in joining China’s new bank. That is reasonable. China is not the monetary-policy expert of the world. However, the US has its own financial “governance” problems, and it is likely that the members of the AIIB, including the Philippines, can handle their own money without the US telling them what to do.
The raising of interest rates...or not John Mangun
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OUTSIDE THE BOX
ORE than 20 central banks around the world have lowered their interest rates in 2015 alone. Yet, the same world is expecting the US Federal Reserve (the Fed) to raise interest rates in the next months.
The truth is that it would probably make more sense just to stop reading my words right now and turn to the “weather forecast” for the weekend. At least, there is a common-sense reality to the weather that is not going to be found talking about global central bank interest-rate policy. Unfortunately, for some of us, what the central banks do or do not do is as addicting as the latest Korean telenovela. Stock-market commentary over the last weeks has been all about the potential impact on the trading of the Philippine Stock Exchange. So the Federal Reserve Open Market Committee meeting came and went and, for all intents and purposes, nothing happened momentous or otherwise. Fed Chairman Janet Yellen said they were still on track to raise rates sometime in the future but that the target, instead of being 1.2 percent by the end of 2015, would now be 0.65
percent. Further, while the employment situation in the US is getting better with all those new waiters and bartenders being hired, economic growth is actually below what was forecast, and is probably going to grow even less than current expectations. Yellen also said that inflation is much lower than the Fed feels is necessary to stimulate the economic spending, and there is no indication that inflation is going to increase in the future. Normally—if anything can be considered normal anymore—interest-rate increases only come when an economy is growing at too fast a pace and inflation is or might become a problem. So, if the US economy is not growing at anywhere near “too fast a pace,” and inflation is virtually nonexistent, then what would be the purpose of raising interest rates anytime in the foreseeable future? A strong US dollar is creating some problems for the US economy as the
current trade balance and currentaccount numbers show and, if the Fed raises interest rates, should attract even more money to come into the US. The Fed does not want that to happen. The US economy is growing at such a slow rate that even the slightest negative effect that an interestrate increase might have on growth is a disaster. The US government has such a large debt-service burden that here, too, even a slight increase in interest rates will cost millions of dollars that the government does not have. So what possibly could be the rational for increasing US interest rates? Now, here is why weather forecasting makes more sense than central bank interest-rate policy. The reason the Fed needs to raise interest rates now is that if it does not, then it will not be able to lower interest rates in the future to stimulate the economy. The Fed’s logic is that low interest rates have not really stimulated the economy but raising interest rates probably won’t hurt. And in the future, if economic growth is still slow, rates can be lowered to stimulate the economy. I told you, weather forecasting makes more sense. However, the great monster hiding under the bed is the US stock market. What if even a slight increase in inters rates causes a massive selloff in US stocks? A barely growing economy and a drop in the stock market would
Innovation in an age of global science
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By Michael S. Lubell | CQ-Roll Call/TNS
CIENTIFIC research is dramatically more global in its practice and impact than it was just a decade ago. Whether the United States is able to capitalize effectively on new discoveries stemming from international collaborations will determine future economic growth and job creation in America. High-energy physics, or particle physics as it is often called, is the epitome of the growing globalization of science, and its recent history holds lessons for the innovation possibilities of tomorrow. Not long ago, the US was home to three world-class accelerators, megamachines that are the mainstays of particle physics. Now all three— Brookhaven’s AGS, Stanford’s Linear Collider and Fermilab’s Tevatron—are mere memories. What remains is the heritage of the pioneering technologies they developed that are vital to accelerator facilities throughout the world. Today many American particle physicists are members of international teams working at such facilities, principally the Large Hadron Collider (LHC), a mammoth circular device stretching 17 miles in length and buried as far as 574 feet below ground near Geneva, Switzerland. Dan Brown fictionalized the machine half a dozen years ago in Angels and Demons, a best-selling tale he spun around the creation of a single gram of antimatter. The LHC, as physicists around the
world call it, never did what Brown imagined it could, but it did produce the Higgs boson with the help of 1,500 US scientists. In physics circles, the Higgs discovery represented a dazzling conclusion to decades of work by thousands of scientists from more than 30 countries. But along the way, CERN, the European Organization for Nuclear Research, which hosts the LHC, spawned something even more revolutionary, at least in a public sense. Spread across the globe, Cern’s scientific cast desperately needed a communication tool that could transmit images and massive sets of data. In 1989 Tim Berners-Lee, working in Geneva, delivered the tool: the World Wide Web. And, in less than 20 years, the Hypertext Transfer Protocol, http, transformed commerce, entertainment, finance and the way we connect with each other. Clever people in any nation could have seized on Berners-Lee’s creation and made their fortunes. But the dotcom revolution happened here. And it was no accident. We had a wellhoned entrepreneurial engine: brainy
students at top-flight universities; science agencies with a history of supporting the best peer-reviewed research; a legacy of federally funded science discoveries ripe for exploitation; risk-taking venture capitalists with deep pockets; and well-established laws that protected intellectual property. What ensued is nothing short of one of the most spectacular episodes in the American dream. The High-Performance Computing and Communications Initiative—credit Al Gore—enabled Marc Andreessen and Eric Bina, then students at the University of Illinois at Urbana-Champaign, to develop Mosaic. That graphical browser, introduced in 1993, morphed into Netscape Navigator and eventually into today’s three most popular tools, Internet Explorer, Mozilla and Safari. In 1994 two Stanford electricalengineering graduate students, Jerry Yang and David Filo, developed the portal “Jerry and David’s Guide to the World Wide Web.” Today we know it as Yahoo. A few years later, Larry Page, who was pursuing his PhD at Stanford, teamed up with fellow student Sergey Brin, who was drawing support from the National Science Foundation, and began work on a Web crawler. Their venture is better known as Google. In 1998 Peter Thiel and Max Levchin launched PayPal, the electronic money-transmission service. Reid Hoffman, who was one of its
be a political disaster for the incumbent presidential party going into the 2016 national elections. US stocks rallied on Wednesday, after the Fed suggested a less aggressive timetable for raising interest rates. The US dollar went down. Further, the Fed has come under intense pressure from other countries not to raise rates, as it would damage their fiscal position even more. But even at current levels, US interest rates are higher than much of the world, particularly in Europe, where negative real and actual rates are becoming more common. Therefore, the potential for a genuine US stockmarket bubble—not simply high prices that the bubble-heads talk about—is becoming greater. A genuine bubble is when the asset price increases in relation to the value of all currencies not just the home currency. At that point, the Fed will be forced to raise rates regardless of what the US economy might suffer or not suffer. Therefore, let’s talk about a rate increase when the Dow Jones gets to 20,000 from its current 18,000. In the meantime, we will have nice weather until the storm comes in later this week. E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
board members, cofounded LinkedIn in 2002. That same year, Mark Zuckerberg and four of his Harvard classmates launched Facebook. Social media was here to stay. All that was missing was hardware to make the connectivity portable. In 2007 Steve Jobs turned hope into reality, when he unveiled the iPhone. Jobs was a visionary and an extraordinary salesman. But neither he nor his company, Apple, was a technology originator. The iPhone and the iPad, which followed in 2010, were enabled by decades of research funded by the US government. The World Wide Web was the product of international science. Any nation could have capitalized on it, but the US had the capability to run with it best and fastest. Today science is even more global. Whether we will be able to replicate our past success when the next big thing happens somewhere else in the world depends on the preparations we make now: ramping up support of public universities; reinvigorating federal research budgets; and getting venture capitalists to return to the days when risk was not a dirty word. Michael S. Lubell is the Mark W. Zemansky professor of Physics at the City College of the City University of New York and director of public affairs of the American Physical Society. He writes and speaks widely about scientific research and science policy. He wrote this for CQ-Roll Call.