This Birthday Is Nothing to Celebrate
The world's 7 billionth person is likely to be born today (Monday).
However, this birthday isn't something to celebrate.
Since the global population passed 6 billion only in late 1999, we've added more than 80 million people each year on average. And the environmental footprint of those people is expanding rapidly as emerging market populations modernize.
The planet may be able to accommodate these extra people and their consumption – but then again, it may not.
And if it can't, the drain on our planet's resources could harm us all.
So we'd better find a way to reduce population growth – fast.
Of course, if you think I'm about to propose something along the lines of China's one-child policy, you couldn't be more wrong.
We have economic means of population control that are neither coercive nor costly. And the sooner we implement them, the better.
A Disaster in the Making
When Thomas Malthus warned of overpopulation in 1798, the global population was approaching 1 billion – a level it reached in 1804. It had grown in the previous three centuries from 500 million in 1500. Thus, if the gradually increasing prosperity of 1500-1800 had continued – without the Industrial Revolution increasing world production capacity artificially – it would have reached 1.62 billion by 2011.
There is a very good case to be made that 1.62 billion is today's natural population, and that the growth since 1800 is artificial, caused by the Industrial Revolution removing previous limits on production. At that level, almost all serious environmental problems would go away. Even if all 1.62 billion of the world's inhabitants enjoyed Western living standards, the global warming and pollution effects of their output would be easily absorbed by the planetary ecosphere.
Around 2004, U.N. population projections had us reaching a population of 8 billion by 2027, then peaking at around 9.3 billion just before 2050 and declining slowly thereafter. Alas, the latest projections are not so sanguine. They have no peak in population this side of 2100, with population passing 10 billion and reaching 10.12 billion in 2100.
At this level, an environmental disaster is very likely.
Jim Rogers Says New Greece Deal Can't Save Europe
Investing legend Jim Rogers said that although the latest Eurozone deal for Greece is more generous than he expected, it's not enough to solve Europe's problems.
"Politicians have delayed addressing the problem yet again," Rogers told Investment Week. "It will come back in a few weeks or a few months and the world will still have the same problem, but this time only worse because the European Central Bank and other countries will be deeper in debt."
The deal European leaders hammered out on Thursday includes boosting the region's rescue fund to $1.4 trillion (1 trillion euros) and asking bondholders to take a voluntary 50% haircut on Greek debt.
Unfair Chinese Business Practices Threaten Profits of U.S. Businesses
U.S. companies have become increasingly worried that unfair Chinese business practices are hurting their ability to compete and will start eating into the juicy profits they've been extracting from the Asian giant.
Problems with how China treats foreign businesses have been simmering for several years, but a recent incident with Wal-Mart Stores Inc. (NYSE: WMT) has pulled those issues back into the spotlight.
Earlier this month the Chinese city of Chongqing forced Wal-Mart to close 13 of its stores for two weeks because officials said the retailer had mislabeled less expensive pork as a better organic type. The officials also fined Wal-Mart $423,000 and even arrested two employees.
This unusually severe response isn't the first. Chinese authorities in May fined Unilever PLC (NYSE ADR: UL) more than $300,000 for announcing that it planned to raise prices – a move officials said undermined the government's attempts to control inflation. French-based Carrefour (PINK: CRRFY) was fined for posting erroneous prices.
Google Inc. (Nasdaq: GOOG) had a protracted battle with Chinese authorities last year over censorship of its search service. Google moved its search engine overseas in protest. Many analysts saw the incident as a way for the government to shepherd users toward domestic search giant Baidu Inc. (NYSE ADR: BIDU).
These penalties top years of unfair Chinese business practices that give advantages to state-owned businesses, including regulations that compel foreign companies to transfer their technology to Chinese firms and laws that weigh more heavily on foreign companies than domestic ones.
"If I were a foreign company, I'd be pretty scared right now," Corbett Wall, a retail expert who heads Shanghai consulting firm +CW Associates, told USA Today. "I absolutely think that [what happened to Wal-Mart] has to do with tensions building up between China and foreign companies."
Big U.S. companies have relied on expansion into China's growing economy to prop up earnings during a period in which Western economies have sagged. They're concerned that if the trend of unfair Chinese business practices worsens, it'll threaten their profits.
According to the 2011 annual survey of U.S. companies conducted by the American Chamber of Commerce in China (Amcham), a majority of U.S. businesses – 71% – said China's licensing process discriminates against foreign companies.
And 40% said they thought the "indigenous innovation" policy – in which the Chinese government favors domestic companies over foreign ones in matters of official procurement – would hurt their business. More than one in four – 26% – said that policy already had hurt them.
A similar number, 24%, said that economic reforms in China had not improved the business climate for U.S. companies, a steep increase from the 9% who said so a year earlier.
At the same time, 78% of U.S. companies said that their operations in China were "profitable" or "very profitable."
"There are two themes to the data," Amcham China Chairman Ted Dean told Bloomberg News. "American companies are doing well and American companies are concerned about in some cases the current regulatory environment and in others the trend line for the regulatory environment."
Four Moves to Make Before Greece Defaults
The very austerity measures that Greece implemented to remedy its sovereign debt crisis have crippled its economy so badly the country is actually sinking deeper into the red, making default all but inevitable.
Already suffering from a four-year-old recession, the Greek economy has been dragged down further by the series of austerity measures – tax increases combined with cuts in pensions and wages. As a result, the Greek economy is expected to contract 5.5% this year and 2.5% in 2012.
The Greek government announced this week that unemployment soared to 16.5% in July, up from 12% a year earlier. It's expected to rise to 17.5% before the end of this year.
With its gross domestic product (GDP) shrinking, Greece has less money to repay its debts, and worse, it must continue borrowing at higher interest rates.
Greece's debt-to-GDP ratio is expected to rise to 162% this year and 181% in 2012.
"Without drastic action, [Greece's] debt-to-GDP ratio will rise to even more alarming levels," a Milken Institute report on the Greek debt crisis said earlier this month. "The ratio is reaching levels at which it becomes extremely difficult, if not impossible, for a country to avoid default on its debt."
Even the "troika" of Greek lenders – the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) – concluded in a report released yesterday (Thursday) that the troubled country's "debt dynamics remain extremely worrying."
"When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatization plan," the report said.
The report also expressed concern that Greece's budget deficit for 2011 will fall between 8.5% and 9% of GDP, which exceeds the target of 7.75% of GDP set by the troika as a condition for granting the most recent batch of bailout loans.
To continue to meet the troika's criteria for still more bailout loans – which Greece must have to avoid default – even more austerity measures will be needed.
But the Greek public, as well as many politicians, has displayed more resistance with each new set of austerity measures.
- Despite Global Slowdown, This Chile Fund Will Prosper
Don't Buy Into Europe's Latest Rescue Effort – The Continent's Banks Are About to Go Bust
The latest plan to preserve the European Union (EU) and save the global banking sector is to force European banks to increase their equity capital.
The goal, of course, is to restore confidence and stability. But if that's the case, then why are so many analysts and savvy investors still nervous?
To put it bluntly, because they know it won't work.
As it stands, the capital shortage is about 200 billion euros ($277 billion) according to the International Monetary Fund (IMF). I think it's more like 1 trillion euros ($1.4 trillion) by the time you factor in all the cross holdings and the daisy chain of exposure that makes the entire banking system there look like Swiss cheese.
Why Recapitalization Won't Work
There are three things that are especially problematic to me:
- European Union (EU) ministers apparently are going to put capital into the system without knowing how much it needs or exactly where to put it. Hard to believe, but thanks to the opaque nature of the derivatives markets, nobody can be sure exactly how much exposure any one bank or financial institution has.
- Healthy banks that do not need an infusion will get one anyway. Rainer Skierka, who is a stock analyst at Bank Sarasin & Cie AG, shares my belief that this will lead to massive dilution for shareholders.
- Any bank that is undercapitalized will effectively be the recipient of capital that has been diverted away from healthy banks and into its toxic financials. Unfortunately, this money will be placed at higher risk in an effort to earn the incremental income needed to backstop bad bets that already are on the books. That means shareholders who are led to believe things are improving will actually find their money at an even higher risk than before.
As I have noted repeatedly since this crisis began, regulators are fighting the wrong battle and have been since 2008. They are worried about liquidity when they should be worried about solvency.
Sure, a bank recapitalization can repair the banking system when it comes to keeping money moving in terms of short-term credit – but no amount of money can prepare European banks for a sovereign default or credit freeze because there literally isn't enough money on the planet to recapitalize the banking system unless you remove the risks that plague it.
The "system" is still at incredible risk.
The total worldwide notional derivatives exposure is more than $600 trillion dollars according to the Bank for International Settlements (BIS). And that's against a gross market value of merely $21.1 trillion.
In other words, banks have invested in instruments valued at $21 trillion but with a total exposure that's 28.4-times that — or $600 trillion dollars.
This is why rogue traders are such a problem; they can take disproportionately large risks with not a lot of capital, which often leads to catastrophe.
Take Nick Leeson, the former derivatives broker who worked for Barings Bank. His leveraged trading losses eventually reached $1.4 billion, or twice Baring's available trading capital. Barings went under as a result.
More recently, Kweku Adoboli, who served as director of exchange traded funds (ETFs) at UBS AG (NYSE: UBS), blew a $2 billion hole in UBS' balance sheet.
Part of the problem is that n obody knows exactly how much cash banks spend to amass such investments because derivatives and sovereign debt trading instruments are still largely unregulated and "self policed" within the industry.
So what's this have to do with our money?
In Today's Crazy Markets, Here's the One Global Region to Invest in Now
Money Morning global investing guru Martin Hutchinson has identified the one global region that he's focusing on as the world's next big profit play.
You'll be stunned to see what he's discovered.
But you'll also be wise to listen.
IMF Growth Forecast: U.S. and Europe Will Ignore Warnings, Despite Slashed Estimates
In lowering its growth forecast for the United States and Europe, the International Monetary Fund (IMF) warned of "severe repercussions" unless drastic measures are taken soon.
But don't expect the warning to spawn any real action.
"The global economy has entered a dangerous new phase," Olivier Blanchard, the IMF's chief economist said in the report released yesterday (Tuesday). "The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks."
The IMF slashed its 2011 growth forecast for the U.S. economy from the 2.5% estimate it offered in June all the way down to 1.5%. Next year won't be any better: The 2.7% 2012 projection the IMF offered in June was cut all the way to 1.8%.
"Bold political commitment to put in place a medium-term debt reduction plan is imperative to avoid a sudden collapse in market confidence that could seriously disrupt global stability," the IMF said.
But with governments in Europe moving slowly to contain the sovereign debt crisis afflicting the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the United States suffering from political gridlock, the IMF's call to action will likely go unheeded.
In recent weeks, U.S. President Barack Obama has proposed a jobs plan, as well as a deficit reduction plan. But with congressional Republicans opposed to elements of those plans – primarily increases in spending and taxes – the swift policy action the IMF sees as critical will likely be stillborn .
In Europe, the IMF is calling for bold action to contain the debt crisis. It is particularly worried that a Greek default could cause many large banks – which own much of the Greek debt – to take large losses.
That U.S. banks are intertwined with European banks heightens the risk.
According to Money Morning C apital W ave S trategist Shah Gilani, "U.S. banks are widely believed to have $41 billion of direct exposure to Greece" and have loaned heavily to their European counterparts.
More sobering, Gilani says, is that "U.S. money-market funds have a hefty European exposure, too." He noted that 12% of the loans made by our biggest money-market funds were made to three big European banks – two of which, Societe Generale SA (PINK ADR: SCGLY) and Credit Agricole SA, were downgraded by Moody's Corp. (NYSE: MCO) just last week.
The third, BNP Paribas SA, remains under review.
How Greece's Debt Issues Are Becoming a Global "Black Hole"
The extremely volatile markets of late stem in part from news suggesting Greece's debt issues have made a default imminent – creating a global black hole that's sucking in a growing number of other economies with it.
Default fears intensified last Friday when European finance ministers announced they would delay a decision on whether or not Greece was eligible for its sixth tranche of bailout funds. Greece was scheduled to get the next $11 billion (8 billion euros) installment of its $152.6 billion (110 billion euros) aid package by the end of September, but now must wait at least until October.
European Union (EU) and International Monetary Fund (IMF) inspectors met with Greek Finance Minister Evangelos Venizelos last night to evaluate the country's progress with austerity measures. Greece agreed to reduce its deficit to 7.5% of gross domestic product (GDP) this year, and below 3% by 2014 in order to receive bailouts from the IMF and other euro nations.
But investors are afraid the country will run out of cash before a bailout decision is reached.
Greece may not be going down to a Trojan-level defeat in the next few days, or even weeks, but there is little doubt that the country cannot afford to remain harnessed to the euro. It faces almost certain default at this point, sad to say, which means that some big banks, shareholders and bondholders are going to suffer.
Perhaps those Eurozone critics who said that a currency union not backed by taxation or bond-issuing authority was a bad idea should have been heeded. Then countries like Greece would not have been encouraged into a currency union that's an ill-suited match for its unique economy, history and ambition.
Now the critics are being proven largely right, unfortunately.
The most dangerous thing is new evidence that the debt crisis continues to spread.
Looks like France is headed down the same path as Italy and Spain. According to a Bloomberg News story last week, France may need new austerity measures to avoid a bond sell-off and credit rating downgrade.
It seems that Nicolas Sarkozy is the new Silvio Berlusconi.