Explaining Kyrgyzstan 
Elinor Burkett explains what’s happening in Bishkek: “This is not democracy. This is just a crowd.”
I know where Kyrgyzstan is, and I know how to spell it. I’ve even met now-former president Askar Akayev a number of times. But I didn’t understand the news from Bishkek before Burkett’s piece.
FT: no comment
There were two must-reads in yesterday’s Financial Times and one curious piece about weblogs.
The must-reads were an analysis of the US property bubble and Wolfgang Munchau’s lament about Europe’s growth strategy (or lack of it). Both, needless to say, are subscribers only.
The key passage on US property:
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In the US there are enough overheated areas to raise fears of serious economic consequences as these markets cool down. An estimate by Economy.com suggests that house-price appreciation has been responsible for one-quarter of the economic growth in the US since 2000 – taking into account equity withdrawal and the faster pace of home building. The sense of rising wealth provided by the property market has also encouraged Americans to consume more and save less of their incomes. |
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Figures from the Federal Reserve this month underlined just how dependent Americans have been on housing market appreciation for rising levels of wealth. Since the start of 2000 net household wealth has risen by $5,020bn to $48,525bn – despite a $341bn decline in holdings of equities. Of this increase in wealth, 70 per cent came from the increase in owners’ equity in property. |
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Largely as a result of this surge in wealth, Americans have neglected to save. In January, consumers put aside just $1 for every $100 of disposable income – close to the lowest level since the second world war. Even in the high-spending late 1990s, Americans saved an average of $3.80 for every $100. |
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“Americans have been putting too many of their eggs in one basket,” says Bill Gale, an economist at the Brookings Institution. “As a result, their spending may have become too sensitive to the moves in the housing market.” |
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It may not even take a flat or falling housing market to damage consumer confidence. A market that merely fails to meet the expectations of many Americans may be enough to convince them to rein in their spending. |
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A recent survey by Yale University suggests that many people in property hotspots have bought in the expectation of wildly unrealistic gains. In Los Angeles, the survey suggested that on average homeowners in 2004 expected their property to appreciate by 22.5 per cent a year for the next 10 years. This was close to double their expectations in 2003. Even in the humbler property market of Milwaukee, consumers are expecting a rate of appreciation of 13.4 per cent a year over the coming decade. The dream of coasting to wealth on the back of housing appreciation seems even stronger than during the property boom of the late 1980s, when residents of LA were expecting a more modest appreciation of 14 per cent per year over the coming decade. |
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“Many people, particularly in frothy areas, seem to be assuming that the housing market will continue do their savings for them,” says [Economy.com head of research Mark] Zandi. “If prices start to slide in some of these states, it will be quite a blow and many may feel they need to increase their savings rate quite significantly at the expense of consumption.” |
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Calculations by HSBC suggest that the US would need to create an additional 2m jobs to make up for an end to mortgage equity withdrawal. This is not a blow that the economy could easily take on the chin.
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And Munchau on Europe:
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Under the reformed stability and growth pact, the rules underpinning EU members’ fiscal policy, governments will be able to run budget deficits of more than 3 per cent of gross domestic product for several years without facing a penalty. I estimate that the reform will raise the eurozone’s cyclically adjusted deficit from about 2 per cent of GDP now to about 2.5 to 3 per cent of GDP in the medium-term. |
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They also missed two big opportunities for the next stage of economic reform. Once again, they managed to overload the Lisbon agenda with a diffuse collection of more than 100 policy goals, and they threw out the services directive. The latter is particularly unpopular in France because Jacques Chirac, the president, and his government have failed to explain it to their citizens. Ironically, France would have been one of the main beneficiaries, but the debate over the directive focused exclusively on the prospect of job losses in some sectors. The decision to drop it is a sign of political panic as opinion polls now predict a victory for the No campaign in France’s referendum on the European constitution on May 29. |
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Taken individually, each of the decisions last week was bad. But they are devastating in combination. The eurozone could just about afford a small rise in the deficit. It could also afford to be complacent about its growth rate. But it cannot afford to do both at the same time without facing long-term insolvency.
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And the curious piece on weblogs (not behind the subscription firewall)? It’s about how advertisers are discovering the power of blogs. It was played prominently, on the back page of the first section next to the Lex column — which must be one of the most-read things in the newspaper. It was reasonably sensible. But not a single weblogger was quoted. That’s way below the standards I expect of the FT.
Let it snow, let it snow, let it snow
It’s been so long since I’ve been truly snowed under with work that it’s a novel feeling to be swamped. But it’s a very good feeling.
Sadly, something has to suffer in the circumstances, and it has been Davos Newbies. I need to find a way to keep my hand in here, but for the moment the demands of starting a new company are taking absolute precedence.