The Coming Crunch
DAVID ROCHE
From today's Wall Street Journal Asia
The global credit crunch has now hit emerging economies, including those in Asia, which many had hoped or expected to be able to "decouple" from developed economies. There will be no escape, and even worse, the super typhoon that is now battering emerging markets will in turn deepen the global recession.
The global credit contraction will affect emerging markets in several ways. First, their exports and imports (of raw materials) will fall as excess demand is eliminated in the over-leveraged rich economies of Europe and North America. There will also be a reduction in capital flows to developing economies in all forms (credit, portfolio investment and foreign direct investment) as a result of deleveraging. At the same time, household and corporate wealth will be destroyed as a result of falling liquidity supply from both domestic and foreign sources. Those emerging economies with large foreign-currency bank loans and liabilities face debt deflation, while many corporations in Asia will find it difficult to grow because they are unable to roll over their excessive foreign loans and bonds.
Many emerging-market current accounts will turn from surplus to deficit, private capital inflows will drop precipitously and residents will run down their assets and take their capital out. So these economies will have a huge external financing problem next year. Their foreign exchange reserves will fall sharply along with their currencies and financial assets.
How will all this misery come about? In the great credit boom of the last decade or so, global liquidity took strange new forms. Credit supply and demand were multiplied by the advent of securitized debt and derivative instruments that facilitated almost limitless expansion of credit beyond the traditional balance sheet capacity of lending institutions. This is the phenomenon I call New Monetarism.
The credit bubble was the financial circuitry of excess consumption in many rich economies. Excess consumption was the appetite on which the factory economies of Asia fed. Like Cleopatra's beauty "they made most want where most they satisfied." In turn, other emerging markets that produced food and energy benefited from the insatiable appetite created by the economic boom of the factory economies. Thus emerging-market demand for commodities and energy was derived from growth in demand from rich economies.
But now excess credit is being removed. While this is happening, demand in rich economies will fall and savings rates will rise. So developing-world factory economies will see export demand cave in and this will cut their own demand for inputs. It has already fed through into lower commodity and oil prices.
Most emerging markets don't have sufficiently robust domestic demand to offset the impact of falling exports as well as an overhang of surplus capacity in the export sector. Their domestic economies are just too small. In China, for example, the consumer accounts for only 36% of demand and investment for 42%, much of it export-related. In the U.S., the figure for the consumer is 70%.
Emerging-market exports were not the only beneficiary of excess credit growth. Capital flows were just as important. Excess liquidity flooded into these economies in the form of portfolio and FDI inflows. This boosted currencies and bloated domestic money supply and credit. In turn, this drove up asset prices and so created more wealth and more demand. Unsurprisingly, the private sector in these countries spotted the opportunity to borrow cheap money in weak currencies and built up massive amounts of dollar and yen debts and foreign exchange derivative liabilities.
So excess credit creation in the U.S. spilled over into both capital inflows to developing countries and demand for their exports. The former created big current account surpluses; the latter boosted capital account surpluses. Both sent international reserves, particularly of dollars, through the roof.
The sum of the twin surpluses -- trade and capital -- was too big for developing countries to absorb. And the rise in international reserves, which was converted into domestic currency by the locals who receive it, was too big to be sterilized by the central banks issuing bonds. So it flowed into the lake of local currency, causing asset prices and inflation to rise.
Emerging-market central banks were accumulating so many dollars they didn't know what to do with them. If they sold them, the falling dollar could wipe out the value of their existing dollar holdings. So they sent their excess dollars back to Uncle Sam, where they generated even more credit expansion.
But now, as exports fall and inflows of liquidity dry up, the emerging markets' net external financing requirement -- the sum of their current account balance, net FDI and annual net debt repayment -- will rocket. From being awash with surplus liquidity, many emerging markets will be parched of it, particularly emerging Europe, Latin America and central Asia.
The international financial institutions will try to avert the worst, but they won't succeed. The U.S. Federal Reserve has offered $30 billion in swaps to four big emerging markets: Mexico, Brazil, South Korea and Singapore. This is in addition to IMF emergency loans to Hungary and Ukraine and a promise to lend five times their entitlement to emerging markets with a record of sound economic management.
In reality the countries being chosen for such aid are those that are strategically important to the donors. But the international authorities can't defend even the economies that are considered "strategic." The cost will be greater than the resources of the International Monetary Fund, World Bank and other agencies.
The thinking behind the bailout is also misdirected. When bubbles burst, asset prices have to find their own level at which they can be liquidated and sold off creditors' balance sheets. Injecting dollar liquidity into emerging markets will not prevent this because the problem is one of the solvency of excessive private sector foreign currency liabilities. It is an earnings and balance sheet issue, not a currency one.
Moreover, there are many more deficit-ridden emerging markets that won't be helped. In Asia, they include Indonesia, the Philippines and Vietnam. Globally the big and the ugly who lie outside the "defensive layer" established by the IMF, Fed and European Central Bank include Russia and Argentina. As they get hit, those that are being helped will be re-infected in turn.
The ebbing tide of global liquidity will test the perceived virtues of emerging markets. In reality, the above-average growth rates depended on an unsustainable credit cycle elsewhere that was amplified at home. The huge accumulation of foreign-exchange reserves was just an appendix of excess global liquidity. Budget arithmetic and external accounts were beneficiaries of the same phenomena.
As these winds of good fortune die out in the deserts of recession (or worse), I suspect that many measures of emerging-market fundamentals will prove mediocrity rather than excellence. That means that risk appetite for these assets will be very slow to return.
Mr. Roche is president of Independent Strategy, a London-based consultancy, and co-author of "New Monetarism" (Lulu Enterprises, 2007).
Hugo Chávez Spreads the Loot
Venezuelan businessman Franklin Durán sat perfectly still last week, staring straight ahead, as a Miami jury pronounced him guilty of acting illegally as an agent for Venezuela on U.S. soil. He could be sentenced to 15 years in prison.
Yet while Durán showed no emotion in the courtroom, back in Venezuela the intellectual author of his crime, President Hugo Chávez, went bonkers.
The problem for Mr. Chávez is that, for almost a decade, Latin American democrats have been accusing Venezuela of violating the sovereignty of its neighbors by supporting the radical left with money and weapons. Mr. Chávez has denied it.
![[Hugo Ch[aacute]vez Spreads the Loot]](http://s.wsj.net/public/resources/images/ED-AI513_AMCOL1_D_20081109171150.jpg)
Associated PressHugo Chavez meets Cristina Kirchner in Buenos Aires, Dec. 11, 2007.
Now comes the Durán conviction, which has revealed that sizable financial contributions went from the Chávez government to Peronist candidate Cristina Kirchner in the 2007 Argentine presidential race. For Mr. Chávez, who appears to be still toiling at a number of other similar projects around the region, the bad publicity is devastating.
Mr. Chávez's trouble in Argentina began on Aug. 4, 2007, when a small jet from Caracas landed in Buenos Aires. On board were two Argentine government officials and three executives of the Venezuelan state-owned oil company, PdVSA. Another passenger was Venezuelan businessman Guido Alejandro Antonini.
Customs agents discovered $800,000 in Mr. Antonini's suitcase that he had not declared. They let him go and he returned home to Miami, where he went to see the Federal Bureau of Investigations and agreed to cooperate in an investigation of the matter.
Mr. Chávez was unaware of this arrangement when he told his intelligence chief to find a way to shut up the bagman. Durán and another Venezuelan named Carlos Kauffman -- both of whom had made a fortune in deals with the Chávez government -- were sent to Florida to warn Mr. Antonini to remain silent. Little did they know that he had agreed to wear a wire to their meetings. The recordings of Durán and Kauffman -- offering Mr. Antonini money if he kept his mouth closed, and suggesting that his children would be at risk if he did not -- helped convict Durán. Kauffman pleaded guilty and testified against Durán.
The exposure of this thuggish behavior of the Venezuelan government is embarrassing enough. What is worse for Mr. Chávez is Mr. Antonini's testimony that he was told by a PdVSA executive that there was another $4.2 million on the same plane and that there had been other operations to smuggle cash into Argentina for political purposes. Kauffman further testified that the Venezuelan ambassador to Bolivia had told him he had "$100 million to spend on Bolivia." Kauffman said he had been negotiating the sale of $12 million of antiriot equipment to Bolivia, to be paid for by Venezuela.
That testimony jibes with reports from Bolivia that the Venezuela ambassador travels the country handing out checks to mayors who support President Evo Morales. Meanwhile, in Colombia, pro-Chávez Senator Piedad Córdoba recently admitted that a PdVSA subsidiary gave her $135,000.
One of the most egregious examples of Venezuelan influence in the domestic politics of neighbors is in Nicaragua, where the old Sandinista Daniel Ortega is now president. Venezuela is supplying 60%-70% of Nicaragua's annual crude-oil needs through a program that allows Mr. Ortega to pay only half the bill. The other half is a 25-year loan. After that the web gets tangled indeed.
Nicaragua's state oil company Petro-Nic sells the oil to private companies and collects the full value. Twenty-five percent of that income then goes to a social investment fund called Albanisa and the other 25% goes to something called Albacaruna. The director of Petronic and Albanisa is also the treasurer of the Sandinista Party. With its "oil income," Albanisa spent the last month giving away goodies like kitchens and houses ahead of yesterday's municipal elections. What Albacaruna does with the other half of the Venezuelan credit is not clear. Government critics say it is a slush fund for Mr. Ortega, and has been used to pay for Sandinista campaigning. Nicaraguans are worried about the loans, which imply more national debt.
In El Salvador, where the former guerrilla group FMLN is hoping to win the presidency in March, FMLN mayors have a company called Alba Petróleos. It receives gasoline and diesel on favorable terms from Venezuela, sells it at a slight discount to the market at its filling stations and captures a fat profit. This allows it to dominate the retail market, and may explain why the party is awash in campaign cash -- some speculate upwards of $60 million
The Durán case has blown the lid off of Mr. Chávez's covert Argentine activities. But his imperialist ambitions go far beyond that country. He may get away with it, but no one should assume from the successes of his protégés that his popularity is spreading. It's Venezuela's money that is doing the trick. With oil prices sinking, one wonders how long the money will last.
The Polls Show That Reaganism Is Not Dead
SCOTT RASMUSSEN
Barack Obama won the White House by campaigning against an unpopular incumbent in a time of economic anxiety and lingering foreign policy concerns. He offered voters an upbeat message, praised the nation as a land of opportunity, promised tax cuts to just about everyone, and overcame doubts about his experience with a strong performance in the presidential debates.
Does this sound familiar? It should. Mr. Obama followed the approach that worked for Ronald Reagan. His victory confirmed that voters still embrace the guiding beliefs of the Reagan era.
During Reagan's campaign, the nation suffered from high unemployment and high inflation. This time around, data from the Rasmussen Reports Daily Presidential Tracking Poll showed that Mr. Obama took command of the race during the 10 days following the collapse of Lehman Brothers -- when the Wall Street meltdown hit Main Street. Before that event John McCain was leading nationally by three percentage points. Ten days later Mr. Obama was up by five and never relinquished his lead.
Mr. Obama's tax-cutting message played a key role in this period of economic anxiety. Tax cuts are well-received at such times: 55% of voters believe they are good for the economy. Only 19% disagree and see them as bad policy.
Down the campaign homestretch, Mr. Obama's tax-cutting promise became his clearest policy position. Eventually he stole the tax issue from the Republicans. Heading into the election, 31% of voters thought that a President Obama would cut their taxes. Only 11% expected a tax cut from a McCain administration.
The last Democratic candidate to win the tax issue was also the last Democratic president -- Bill Clinton. In fact, the candidate who most credibly promises the lowest level of taxes has won every presidential election in at least the last 40 years.
But while Mr. Obama was promising to cut taxes, the Bush administration took the lead on a $700 billion, taxpayer-backed bailout bill -- with very little marketing finesse. Few Americans supported the bailout, and a majority of voters were more concerned that the government would do too much rather than too little. In terms of getting the economy going again, 58% said that more tax cuts would better stimulate the economy than new government spending.
A Rasmussen survey conducted Oct. 2 found that 59% agreed with the sentiment expressed by Reagan in his first inaugural address: "Government is not the solution to our problem; government is the problem." Just 28% disagreed with this sentiment. That survey also found that 44% of Obama voters agreed with Reagan's assessment (40% did not). And McCain voters overwhelmingly supported the Gipper.
The real challenge for the new president will be attempting to govern with a message that resonates with most voters but divides his own party. Consider that 43% of voters view it as a positive to describe a candidate as being like Reagan, while just 26% consider it a negative. Being compared to Reagan rates higher among voters than being called "conservative," "moderate," "liberal" or "progressive." Except among Democrats, that is. Fifty-one percent of Democrats view that Reagan comparison as a negative. There's Mr. Obama's dilemma in a nutshell.
Mr. Obama won the White House promising tax cuts, but he will be governing with a Democratic Congress bursting with desire for a more activist government. As he faces this challenge, he might remember the fate of another man who made taxes the central part of his campaign: the first President Bush, whose most memorable campaign line -- "Read my lips, no new taxes" -- was as central to his victory as Mr. Obama's promise to cut taxes for 95% of Americans. George H.W. Bush famously reneged on that promise. Voters rejected his bid for a second term.
Mr. Obama ran like Reagan. Will he be able to govern that way, too?
Mr. Rasmussen is president of Rasmussen Reports, an independent national polling company.
Nationalizing Detroit
In the Washington mind, there are two kinds of private companies. There are successful if "greedy" corporations, which can always afford to pay more taxes and tolerate more regulation. And then there are the corporate supplicants that need a handout. As the Detroit auto makers are proving, you can go from being the first to the second in the blink of an election.
For decades, Congress has never had a second thought as it imposed tighter emissions standards on GM, Ford and Chrysler, denouncing them for making evil SUVs. Yet now that the companies are bleeding cash, and may be heading for bankruptcy, suddenly the shrinking Big Three are the latest candidates for a taxpayer bailout. One $25 billion loan facility has already been signed into law, and Senator Debbie Stabenow (D., Mich.) wants another $25 billion, this time with no strings attached.
Speaker Nancy Pelosi and Senate Majority Leader Harry Reid met last week with company and union officials, and they later sent a letter urging Treasury Secretary Henry Paulson to bestow cash from the Troubled Asset Relief Program (Tarp) on the companies. Barack Obama implied at his Friday press conference that he too favors some kind of taxpayer rescue of Detroit, though no doubt he'd like to have President Bush's signature on the check so he won't have to take full political responsibility.
We hope Messrs. Bush and Paulson just say no. The Tarp was intended to save the financial system from collapse, not to be a honey pot for any industry running short of cash. The financial panic has hit Detroit hard, but its problems go back decades and are far deeper than reduced access to credit among car buyers. As a political matter, the Bush Administration is also long past the point where it might get any credit for helping Detroit. But it will earn the scorn of taxpayers if it refuses to set some limits on access to the Tarp. If Democrats want to change the rules next year, let them do it on their own political dime.
A bailout might avoid any near-term bankruptcy filing, but it won't address Detroit's fundamental problems of making cars that Americans won't buy and labor contracts that are too rich and inflexible to make them competitive. As Paul Ingrassia notes nearby, Detroit's costs are far too high for their market share. While GM has spent billions of dollars on labor buyouts in recent years, they are still forced by federal mileage standards to churn out small cars that make little or no profit at plants organized by the United Auto Workers.
Rest assured that the politicians don't want to do a thing about those labor contracts or mileage standards. In their letter, Ms. Pelosi and Mr. Reid recommend such "taxpayer protections" as "limits on executive compensation and equity stakes" that would dilute shareholders. But they never mention the UAW contracts that have done so much to put Detroit on the road to ruin. In fact, the main point of any taxpayer rescue seems to be to postpone a day of reckoning on those contracts. That includes even the notorious UAW Jobs Bank that continues to pay workers not to work.
A Detroit bailout would also be unfair to other companies that make cars in the U.S. Yes, those are "foreign" companies in the narrow sense that they are headquartered overseas. But then so was Chrysler before Daimler sold most of the car maker to Cerberus, the private equity fund. Honda, Toyota and the rest employ about 113,000 American auto workers who make nearly four million cars a year in states like Alabama and Tennessee. Unlike Michigan, these states didn't vote for Mr. Obama.
But the very success of this U.S. auto industry indicates that highly skilled American workers can profitably churn out cars without being organized by the UAW. A bailout for Chrysler would in essence be assisting rich Cerberus investors at the expense of middle-class nonunion auto workers. Is this the new "progressive" era we keep reading so much about?
The car makers say that bankruptcy is unthinkable and "not an option." And bankruptcy would certainly be expensive, not least for Washington itself, which could be responsible for 600,000 or so retiree pensions through the Pension Benefit Guaranty Corp. In that sense, the bailout is intended to rescue the politicians from having to honor that earlier irresponsible guarantee. But at least that guarantee would be finite. If Uncle Sam buys into Detroit, $50 billion would only be the start of the outlays as taxpayers were obliged to protect their earlier investment in uncompetitive companies.
* * *If our politicians can't avoid throwing taxpayer cash at Detroit, then they should at least do so in a way that really protects taxpayers. That means handing a receiver the power to replace current management, zero out current shareholders, and especially to rewrite labor and other contracts. Anything less is merely a payoff to Michigan politicians and their union allies.
Yet Another GM Bailout
General Motors has once again approached the federal government with its hand out. It should not be forgotten that in September of 2008, Congress gave the "big three" automakers a loan totaling $25 billion. Now they are back. This time they say that with a mere $50 billion they can turn things around and become profitable in the future. The management of GM and Ford as well as the UAW have been meeting with Nancy Pelosi to arrange a deal. GM claims that if the government does not give them the money they demand it will spell doom for the company and thus the entire US economy.
Let's consider the impact of GM ceasing to exist — highly unlikely even if they declare bankruptcy. Hypothetically, GM would close its doors and all 266,000 workers would be unemployed, never to find work again, or so GM would have the public believe. GM maintains that it is really in the best interest of the country and economy to continue to support their failing business model. After all, in what kind of a world would the government allow a company that employs 266,000 workers to fail?
Descending into an abstract economics lesson about shifting resources to marginally more productive activities may be ineffective; therefore, I will approach this issue from a more philosophical angle.
The basis of GM's claim is essentially that they are too big or too important to fail due to their massive labor force. But how massive is their labor force relative to other American companies? It may be surprising that the following companies employ a larger number of workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears, and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and Verizon all employ nearly as many workers as GM.
The question must be posed: Should the government bail out all 12 of these companies and, if so, at what cost? I doubt that if Wal-Mart, with their 2.1 million employees, went to the government or the American people and demanded a bailout that they would receive much sympathy, let alone money. But if we are going to base worthiness of bailout on number of employees alone, then Wal-Mart is almost 7 times more worthy than GM.
(I have largely neglected Ford, whose executives are also demanding a bailout. I believe that it is enough to simply state that Abercrombie & Fitch employs almost 7,000 more workers than does Ford. Would the failure of Abercrombie & Fitch's threaten the economy? I think not.)
It is unethical to force taxpayers to pay billions of dollars in order to bail out a company with a failing business model. After all, they cannot even claim, as banks did, that it is an industry-wide problem. Because if it were industry-wide, Toyota, Hyundai, Honda, Volkswagen, etc. would all be joining their American counterparts on Capitol Hill with their collective hands out.
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For years GM and Ford have produced a product that consumers do not value as much as the product provided by their competitors. Rather than changing their products or business model, they instead spent small fortunes on lobbyists. If the government does bail out GM, rest assured that this will not be the last time. But even if the government gives GM a check every week, there will come a time when no amount of government money will be enough to save them.
What is the best solution? In a word, bankruptcy. By filing for bankruptcy protection, GM can escape the death grip the UAW has on the business. Bankruptcy would allow for restructuring on an unprecedented scale. There is a good chance that a highly competitive company could rise from the ashes of what we today call GM. Even if GM itself was unable to survive bankruptcy, the resources freed from its grasp could be hugely beneficial to other automotive companies that make products that American consumers value more. As taxpayers, we have a right to object to this misuse of our money.
Sunday, November 9, 2008
-- Barack Obama once joked at a charity dinner that when Rahm Emanuel severed his middle finger, it almost rendered him mute.
Yesterday, Obama announced that Emanuel, an often-profane, combative Chicago congressman versed in the ways of the White House and Capitol Hill, would have one of the biggest voices in his administration: chief of staff.
It's a role akin to being the chief operating officer of the nation, the gatekeeper to the Oval Office, a position that also requires the ability to deliver a forceful ``no.''
``Rahm doesn't have an issue with that,'' said William Daley, a longtime Democratic powerbroker from Chicago who served as commerce secretary in the Clinton administration and has known Emanuel for 20 years.
Emanuel's appointment marked the first major staff announcement for the president-elect, who is off to a quick start on his preparations for his transition to office on Jan. 20.
Obama and Vice President-elect Joe Biden are to meet today with billionaire investor Warren Buffett, former Securities and Exchange Commission Chairman William Donaldson, former Treasury Secretary and Citigroup Inc. senior counselor Robert Rubin, former Federal Reserve Chairman Paul Volcker and other members of his team of economic advisers.
Dealmaker
Emanuel will be at his side, and he's no stranger to the world of high finance.
He left the White House in October 1998, after holding several posts for President Bill Clinton, to work for one of Clinton's most prolific fundraisers, Bruce Wasserstein.
Emanuel, 48, earned $16.2 million in his three years as a managing director for the firm then known as Dresdner Kleinwort Wasserstein, according to financial-disclosure reports he filed with Congress. That income put him in the top 3 percent to 5 percent of investment bankers at the time, according to a 2003 story in the Chicago Tribune. Emanuel also served as a director of Freddie Mac, earning $27,280, the disclosures show.
His fees largely stemmed from deals involving utility companies, including one representing Commonwealth Edison Co.'s corporate parent in a merger, the story said. Other commissions came from deals with Democratic donor S. Daniel Abraham, former owner of Slim-Fast Foods, and defense industrialist Bernard Schwartz.
``I brought in business and worked on business that was very successful,'' Emanuel told the Tribune.
`Getting Things Done'
Obama praised Emanuel, a wiry tough guy who also dances ballet and whose slender build belies a muscular intensity. Republicans expressed skepticism.
``I announce this appointment first because the chief of staff is central to the ability of a president and administration to accomplish an agenda,'' Obama said yesterday in a statement. ``And no one I know is better at getting things done than Rahm Emanuel.''
It is how Emanuel gets things done that has sparked numerous battles with Republicans. ``This is an ironic choice for a president-elect who has promised to change Washington, make politics more civil, and govern from the center,'' said Representative John Boehner, the House Republican leader.
If Boehner anticipates conflict, Emanuel, who once sent a Democratic consultant a dead fish, said he didn't relish a fight.
``I want to say a special word about my Republican colleagues, who serve with dignity, decency and a deep sense of patriotism,'' Emanuel said in a statement. ``We often disagree, but I respect their motives. Now is a time for unity.''
`Absolute Enforcer'
That's not to say Emanuel will suddenly transform his kinetic personality.
``The genius about the pick is this good cop you will have in President Obama and the absolute enforcer you will have in Rahm,'' said John Lapp, who served as executive director of the Democratic Congressional Campaign Committee in 2006, when Emanuel served as chairman and Democrats gained control of the House for the first time in 12 years.
``He knows where the bodies are buried, what people's wants, desires, needs and vulnerabilities are,'' Lapp said. ``He does not tolerate mistakes. He does not tolerate human error.''
At the same time, Lapp described Emanuel as a ``policy wonk'' who ``loves President Obama like a brother.''
Difficult Decision
The decision to accept the job, Daley and others said, was a difficult one for Emanuel. He and his wife, Amy Rule, have three young children, and the demands of the job of chief of staff have few limits.
Emanuel consulted numerous friends and advisers, including Jack Moline, a rabbi in Alexandria, Virginia, who did twice- monthly spiritual counseling for Emanuel when he worked in the White House the first time.
``He's impressed by the awesome nature of what he will be doing,'' Moline said. ``For him this was not just a meditation on whether this was the job he wanted. It was a question of what it would do to him in the longer term and to his family, longer time.
``The best thing about Rahm is that in spite of how people depict him in his public persona, he is a brilliant and compassionate human being. His tactics attract attention but I have seen him in his private moments, struggling with decisions, and his first priority is his family.''
Independence Fighter
That family also includes his father, Benjamin, a pediatrician, his mother, Marsha, two brothers, Ezekiel, a doctor at the National Institutes of Health, and Ari, a Hollywood agent who inspired the Ari Gold character in HBO's ``Entourage.''
Obama, criticized by Republicans during the campaign for his contacts with Palestinian advocates, named in Emanuel a person with strong family ties to Israel.
Benjamin Emanuel participated in the Irgun, a pre- statehood group seeking independence for Israel. As he was putting up posters to promote the resistance, he was struck on the head by a British officer's baton, a wound that is still visible today. Benjamin's brother, Emanuel, was killed, and he changed the family name from Auerbach to Emanuel in his honor.
It was a competitive family. Emanuel's mother jokingly calls her middle son, ``Rahmbo.'' When he was 17, Emanuel severed half of his middle finger while working at an Arby's restaurant. He refused to be treated because he wanted to attend his high school prom. An infection set in and almost killed him. It was at that moment, his mother said, that he became more serious about life, as detailed in the book ``The Thumpin''' by Naftali Bendavid, an account of Emanuel's role in the 2006 campaign.
Fiercely Loyal
Emanuel, the No. 4 ranking Democrat in the House, has advised Obama throughout his rapid political ascent. Friends and foes alike describe him as fiercely loyal as well as being steeped in policy, particularly economic matters.
In Clinton's White House, he served as political director and senior adviser. His most important policy accomplishment was helping to persuade Congress to pass the North American Free Trade Agreement in 1993. He was also an outspoken defender of Clinton during the impeachment proceedings against him.
``He was bred for this job,'' said James Carville, who ran Clinton's 1992 presidential campaign. ``How many chiefs of staff have this kind of experience?''
Daley, the younger brother of Chicago Mayor Richard Daley, said Emanuel has the three qualities needed in a successful chief of staff.
`Disciplined and Organized'
``One, he's very focused, disciplined and organized,'' Daley said. ``He is very good on policy and he does get the interconnection with policy issues and debates. And third, he's close to the president-elect.''
Emanuel has matured since his days in the White House, where he was known as an aide whose elbows were sometimes too sharp, into a more nuanced leader, according to Daley.
``The Rahm of 15 years ago is very different from the Rahm of today,'' Daley said. ``The young Rahm was pretty full of himself.''
Illinois Republican Representative Ray LaHood agreed.
LaHood, who is retiring after seven terms in office, said Emanuel called him the day after he was first elected in 2002 and offered to work with him. The two struck up a friendship and over the last two years organized dinners in Washington among Republican and Democratic lawmakers to try to lower the partisan temperature.
`A True Friend'
``This idea that Rahm is a guy who can't get along with Republicans is just not true,'' LaHood said. ``The truth is in politics, you can count your friends on one or two hands, but he's been a true friend.''
Added LaHood, ``The idea that he's just a trash-talking, hard-core Chicago pol does not reflect who the man really is.''
After his time in the Clinton White House, Emanuel worked in investment banking. In one deal, he said, he earned more than $12 million, which gave him the financial security that enabled him to accelerate his own political career timetable.
He won a tough primary in 2002 and then won election in his heavily Democratic district and has had easy races since.
In 2006, House Speaker Nancy Pelosi tapped him to run the Democratic Congressional Campaign Committee. Emanuel threw himself into his work, recruiting candidates, raising money, and relentlessly and loudly following up with advice.
The reward? Democrats won control of the House that they had lost in 1994 and Emanuel's place in the leadership was solidified.
``Look, this is not for the fainthearted,'' he said in an interview with the Chicago Tribune in 2006. ``Their job is important to them, and I am seen as a threat to their job security,'' he said of the Republicans. ``And that's life. And I didn't come up here to win a popularity contest.''
Obama picked up on that spirit during the charity roast in 2005, saying that Emanuel was ``the first to develop Machiavelli's `The Prince' for dance. It was an intriguing piece,'' he said. ``A lot of kicks below the waist.''
By Ben Sills and Shamim Adam
Nov. 9 (Bloomberg) -- The Group of 20 nations is prepared to act ``urgently'' to bolster growth and called on governments to cut interest rates and raise spending as the world's leading industrialized economies battle the threat of a recession.
``We stand ready to urgently take forward work and actions agreed by our leaders to restore and maintain financial stability and support global growth,'' the group said in a statement released today following a meeting in Sao Paulo. ``Countries must use all their policy flexibility, consistent with their circumstances, to support sustainable growth.''
Those measures include ``monetary and fiscal policy,'' it said.
China, the world's largest developing economy, announced an economic stimulus package today worth almost a fifth of its output to sustain domestic demand as the credit crunch drags down growth from New York to Tokyo. Officials in the U.S. and Europe already have slashed borrowing costs and boosted spending in a bid to contain the effects of the slump.
``The solution to this crisis must be rapid,'' Brazilian Finance Minister Guido Mantega told reporters. ``We need to change the tire on the car while it's still moving.''
Australia's central bank signaled today that it's prepared to add to the most aggressive interest-rate cuts in 17 years. Taiwan's central bank yesterday cut its benchmark interest rate for the fourth time in two months.
BRIC Plans
Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows among their economies, Russian Finance Minister Alexei Kudrin said in an interview. Mexican Deputy Finance Minister Alejandro Werner said slower economic growth and lower food and commodity prices justify cutting interest rates.
Finance ministers and central bankers from the G-20 are laying the groundwork this weekend for a Nov. 15 heads-of-state summit in Washington. The ministers' talks end today.
The Bank of England already lowered its key rate to 3 percent last week while the European Central Bank cut by half a percentage point twice within a month. The U.S. Federal Reserve, battling the financial crisis at its source, has already lowered its benchmark rate to 1 percent.
``The recent slowdown in world growth and consequent reduction in commodity prices have decreased inflationary pressures, especially in advanced economies, and permitted central banks to decide on monetary easing,'' the statement said.
Recession
The International Monetary Fund is forecasting that the U.K., Japan, the euro region and the U.K. economies will all contract next year in their first simultaneous recession since the Second World War. With slower growth damping inflationary pressures, central banks are likely to cut borrowing costs further, Canadian Finance Minister Jim Flaherty said.
``There are ongoing conversations about who plans to do what, when'' on interest rates, Flaherty said. ``I expect that these discussions will lead to some degree of coordinated action.''
Some countries' maneuvering room on interest rates is still constrained by inflation pressures as weakening currencies increase the cost of imported goods, the draft statement said. The Brazilian government has spent $5.1 billion defending the real in the past two months, while the Mexican peso fell by more than a quarter since July.
Even the euro has lost 20 percent against the dollar since touching a record that month.
Falling Currencies
``In those economies facing currency depreciation and still suffering from second-round effects inflationary pressures may be more persistent,'' the statement said. ``In this context, monetary authorities will need to continue to carefully monitor economic developments including the consequences of financial de- leveraging in order to take appropriate action if needed.''
China's State Council said today the government will spend 4 trillion yuan ($586 billion) by the end of 2010 as part of its stimulus plans, according to a statement on its Web site. The package, of which 100 billion yuan is earmarked for this quarter, will go toward low-rent housing, infrastructure in rural areas, as well as roads, railways and airports, the State Council said.
``We are closely watching the development of the financial crisis and the situation regarding global activity,'' Zhou Xiaochuan, governor of the People's Bank of China, said yesterday. ``If China can maintain domestic demand, it's helpful for global stability.''
China accounted for 27 percent of global economic growth last year, more than any other nation, the International Monetary Fund said in a report in April.
Nov. 10 (Bloomberg) -- Asian stocks rallied for the first time in three days after China announced a $586 billion economic stimulus package and Taiwan cut interest rates.
Rio Tinto Ltd., which gets about a fifth of its sales in China, added 7 percent after the country unveiled measures including infrastructure spending, tax deductions and farming subsidies. Macquarie Group Ltd., Australia’s biggest investment bank, jumped 4.2 percent after Group of 20 leaders called for interest-rate cuts and higher spending to bolster global growth. Toyota Motor Corp. added 1.7 percent after Japanese machinery orders rose more than forecast in September from a month earlier.
“Governments and businesses are working on solutions to the slowdown plaguing economies and earnings, which may bring us some positive surprises,” said Tomochika Kitaoka, a Tokyo-based strategist at Mizuho Securities Co., said in an interview with Bloomberg Television. “Given demand is waning, government spending will be a welcome boost to economies.”
The MSCI Asia Pacific Index gained 1.3 percent to 88.36 as of 9:11 a.m. in Tokyo. The gauge is still down 44 percent in 2008 as the credit crisis slows global growth, denting demand for Asian exports.
Japan’s Nikkei 225 Stock Average surged 4 percent to 8927.64. Australia’s S&P/ASX 200 Index gained 2.1 percent. New Zealand’s NZX 50 Index rose 1.4 percent following the election of John Key, a former trader at Merrill Lynch & Co., as prime minister.
Stimulus Package
Futures on the Standard & Poor’s 500 Index climbed 2 percent today. The gauge advanced 2.9 percent on Nov. 7, the first gain in three days, as traders bet the Federal Reserve will cut interest rates in the face of rising unemployment.
China plans to spend 4 trillion yuan ($586 billion) by 2010 to support growth in its domestic economy as the rest of the world slows, the Beijing-based State Council said yesterday on its Web site. The funds are equivalent to almost a fifth of the nation’s gross domestic product.
The Group of 20 nations said yesterday after a meeting in Sao Paulo that it’s ready to act “urgently” to bolster economic growth, and that governments must take all measures, which include monetary and fiscal policy. Taiwan’s central bank lowered its benchmark interest rate for the fourth time in two months, effective today.
Concerns linger that the worldwide economy will fall into a recession after the collapse of the U.S. mortgage market triggered a credit crisis. The MSCI World Index has lost 41 percent of its value so far this year, and $29 trillion has been wiped off from global stock markets.
In the U.S., the jobless rate rose to 6.5 percent in October, the highest level since 1994, the Labor Department reported on Nov. 7. There is a 97 percent chance the Fed will cut its interbank lending rate at its Dec. 16 meeting, according to futures on the Chicago Board of Trade.
Nov. 10 (Bloomberg) -- China pledged a 4 trillion yuan ($586 billion) stimulus plan to prop up growth in the fourth-largest economy as the world heads toward a recession.
The funds, equivalent to almost a fifth of China's gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said yesterday on its Web site. Following a weekend meeting in Sao Paulo, finance ministers from the Group of 20 nations, of which China is a member, issued a joint statement saying they are ready to act ``urgently'' to tackle the economic slump.
``If the Chinese use this as a diplomatic initiative, it could be an important step toward a more coordinated response,'' Simon Johnson, a senior fellow at the Peterson Institute for International Economics and former chief economist of the International Monetary Fund, said in Boston.
China is taking steps to bolster its economy, the biggest contributor to global expansion, less than a week before President Hu Jintao goes to Washington for talks with world leaders on ways to revive growth. U.S. President-elect Barack Obama vowed last week to push a package through Congress ``immediately after'' taking office in January if lawmakers and the Bush administration can't agree on one before then.
China accounted for 27 percent of global economic growth last year, more than any other nation, according to IMF estimates. Central bank Governor Zhou Xiaochuan said Nov. 8 that boosting spending at home is the best way China can help avert a prolonged world recession.
`Intensifying' Crisis
Taiwan, which counts China as its largest trading partner, late yesterday cut interest rates for the fourth time in two months after exports dropped in October by the most in three years. The Federal Reserve, the European Central Bank and the Bank of Japan have all lowered their benchmark rates in the last two weeks, as has the People's Bank of China.
``Over the past two months, the global financial crisis has been intensifying daily,'' the State Council said in yesterday's statement. ``In expanding investment, we must be fast and heavy- handed,'' it said, adding that the central bank will pursue a ``moderately loose'' monetary policy.
The stimulus package, of which 100 billion yuan is earmarked for this quarter, will go toward low-rent housing, infrastructure in rural areas, as well as roads, railways and airports, it said.
The government will allow tax deductions for purchases of fixed assets such as machinery to stimulate investment, a move that will reduce companies' costs by an estimated 120 billion yuan.
Grain Subsidies
In addition, grain purchase prices and subsidies for farmers will be raised, as will allowances for low-income urban households. The government also scrapped loan quotas to help boost lending to small businesses.
``We view this as a positive step,'' the U.S. Treasury's Undersecretary for International Affairs David McCormick told Bloomberg in televised interview in Sao Paulo ``This stimulus should help encourage domestic consumption'' in China, he said.
The stimulus plan should give a lift to China's shares, said Ben Simpfendorfer, an economist at Royal Bank of Scotland Group Plc in Hong Kong. The CSI 300 Index has tumbled 69 percent this year, the biggest drop among stock benchmarks in the Asia-Pacific region.
``The package will be positive for the stock market, but again, we need to see results,'' Simpfendorfer said.
``China is well positioned during the recession to boost infrastructure, modernize aging industrial assets and also invest in raw materials production abroad, including energy,'' said Ariel Cohen, a senior fellow at the Heritage Foundation in Washington.
May Boost Growth
The extra spending may boost the nation's economic growth by 2 percentage points next year, said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. UBS AG and Credit Suisse AG, before yesterday's announcement, forecast GDP would rise no more than 7.5 percent next year, which would be the smallest increase in nearly two decades.
China is trying to stop an economic slowdown from deepening as exports wane, manufacturing cools and a property slump undermines domestic demand. The central bank has already cut interest rates three times in two months, reducing the one-year lending rate to 6.66 percent.
Manufacturing contracted by the most since at least 2004 in October and export orders dropped to their lowest, according to CLSA Asia Pacific Markets. Home sales have plunged in major cities including Beijing and the stockpile of unsold new vehicles was at a four-year high in September.
``The golden years have shuddered to a dramatic halt,'' said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.
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