— Globalization
A fascinating but
little-noted aspect of the
recent financial turmoil
is how much it’s been
an international event.
It started with doubts
about China’s economy,
symbolized by a tumbling
stock market and a surprise
devaluation of the renminbi
(RMB). But the worry
quickly spread to all major
stock markets, along with
a growing unease that the
global economy suddenly
faced new — though not
well-defined — perils.
Some connections
between China and the
wider world are apparent.
As I argued last week,
one is commodities — the
minerals, grains and fuels
that China consumes in
prodigious quantities.
China’s needs dominate
these markets. Economist
John Mothersole of IHS
Global Insight reports that
China’s share of world
consumption for five
major industrial metals
(aluminum, copper, lead,
nickel and zinc) is now
48 percent, up from
13 percent in 2000.
If China’s demand for
commodities falls below
expectations, the ripple
effects are widely felt.
Commodity surpluses
result, depressing prices
and profits. New mining
projects are canceled.
countries — the likes of
Brazil, Indonesia — suffer
slower growth. That’s
what happened. Although
China’s economy is still
expanding, it’s expanding
less rapidly than predicted.
Oil is a special case but
similar: Consumption
disappointed. The
International Energy
Agency forecasts that
China’s oil demand will
grow 3 percent in 2015 and
2016, “well down [from]
the double-digit percentage
point gains seen only a few
years back.” The shortfall
— along with U.S. shale oil
— has created the massive
crude surpluses that have
sent prices down from
more than $100 a barrel in
2014 to $40 or less now.
But these links between
China and the rest of the
world are well known.
By themselves, they
don’t seem to explain
why China’s problems
suddenly precipitated an
international financial
firestorm. The answer,
I think, lies in what
economists call “capital
flows.” Huge amounts
of money can shift in a
digital instant among
countries, currencies and
various financial markets.
In our mind’s eye,
“globalization” evokes
images of exports,
container ships, and
supply chains. This
physical globalization
does not operate at warp
speed. It takes time
to deliver a cargo or
construct a supply chain.
By contrast, financial
globalization can operate
at warp speed. With a
few keyboard strokes,
investors can dump stocks
in one country and buy in
another or do the same
for bonds and currencies.
Since the 1980s, this type
of globalization has spread.
Most countries have
dismantled the restrictions
that limited or prevented
individuals and companies
from moving money across
borders. After World War
II, these “capital controls”
were widespread.
As a result, large and
unexpected events can
trigger panic buying and
selling around the world,
as traders react to what
they think other traders
will do. China’s unexpected
devaluation, coupled with
its stock market decline,
apparently constituted
this sort of trigger. But
the effects of financial
globalization go further.
In a new paper,
economists at the Bank for
International Settlements
(BIS) argue that the
internationalization of
finance has diminished
many countries’ influence
over their long-term
interest rates. Especially
affected are emerging-
market countries such
as Brazil. If companies
in these countries don’t
like domestic interest
rates in local currencies,
many can borrow in
dollars at lower rates, say
the BIS economists.
By early 2015, borrowing
in U.S. dollar bond markets
by non-bank foreigners
totaled an eye-popping
$4.5 trillion. “Dollar
bond markets [have
gone] global,” they write.
Aside from weakening
government central banks,
this creates new economic
vulnerabilities. One is
a currency mismatch:
Companies that borrow
in dollars must repay in
dollars; but if they earn
most of their revenue
in local money (say,
the peso for Mexico), a
depreciating currency will
make repayment harder.
Globalization has also
punished the United
States. From 2004 to
2006, the Federal Reserve
raised short-term interest
rates by 4.25 percentage
points, believing that
long-term rates on bonds
and mortgages — which
affect the economy more
— would follow. They
didn’t. If they had, would
the 2008-09 financial
crisis have been avoided or
softened? Ben Bernanke
later argued that a “global
savings glut” of dollars —
flooding into bonds — kept
long-term rates down.
It’s not that this sort of
globalization is entirely
new. Greg Ip, The Wall
Street Journal’s chief
economic commentator,
usefully recalls that the
Asian debt crisis of 1997-98
stemmed from excessive
capital inflows (mostly
bank loans) to countries
like Thailand and South
Korea. But since then,
cross-border money
movements have grown
and become more complex.
These flows are too great
to be bottled up; we can’t
revert to widespread
capital controls.
Still, globalization is
quietly rewriting the
economic rules in ways
that suggest we may be
losing control over events.
We are not entirely at the
whim of international
markets — but we’re
drifting in that direction.
Not a comforting thought.
(c) 2015, The Washington Post
Writers Group
On July 30, the trustees voted to
authorize the Office of Hawaiian Affairs
administration’s proposal to consolidate
my committee, Asset & Resource
Management (ARM) and the Land and
Property (LAP) Committee into a new
super-committee called the Committee
on Resource Management. The board
needs to vote on it one more time before
it becomes official but, by the time you
read this, it probably already happened.
OHA’s administration feels that
having three committees only wastes
time and effort. But this is just part
of the administration’s continuous
efforts to strengthen its control over
trustees. Over the past six months they
have harassed trustees by denying our
travel and sponsorship requests; using
vague rules that we never authorized.
Is the administration elected by the
beneficiaries or hired by the trustees?
Trustees are the policymakers, but
with very weak leadership at the helm
of the board, our powers have been
minimized. OHA’s administrators and
attorneys run the show and the trustees
have been downgraded. Despite pledging
to take back power, this chairman has
not kept his promise to trustees.
Consolidating committees will only
centralize power under a few trustees who
are favored by the administration. Despite
early promises by this chairman to stop
this kind of shenanigans, he has failed.
So you can expect business as usual.
Over 10 years ago, OHA had five
committees covering everything from
land to the legislature. Trustees developed
many successful programs, such as Aha
Opio and Aha Kupuna. Then Trustee
Haunani Apoliona and her faction
took over and consolidated the five
committees into two, giving her and
her successor a tighter grip on power.
This was the start of a string of
disasters as OHA could not get
anything meaningful done. With no
trustee committees overseeing them,
our successful programs were quietly
discontinued. But it’s the loss of land that
was the most devastating consequence.
In 2002, a company leaving Hawaii
offered to donate to OHA 198 acres of
Maili land. OHA waited too long to
respond and the company sold the land,
valued at $3 million for $100,000. The
ARM chairman at the time said he didn’t
see the urgency of the deal and failed to
take it up in his committee in a timely
manner. It was unconscionable to let such
a huge opportunity slip through the cracks.
Unfortunately, history tends to repeat itself.
On Aug. 18, 2004, Joe Wedeman
offered to donate 66.4 acres of Puna
land to OHA. The gift was a tremendous
opportunity and could be an educational
and cultural resource for students.
I immediately asked the ARM chairman
to bring it to the committee for a vote
and reminded him about the Maili
debacle. On Sept. 1, 2004, he asked the
administrator to do a study first. Then, on
Sept. 29, 2004, they asked for three more
weeks to visit the site. When I checked
on Dec. 17, 2004, it still wasn’t done.
By the time the administration
finally presented the study to ARM
on Feb. 16, 2005, Mr. Wedeman
had withdrawn his offer.
We need both the LAP
and ARM committees.
The trustees seem to have forgotten
all of the problems above that led to the
creation of the LAP Committee. Shouldn’t
everyone be asking why leadership
wants to combine it with ARM? They
are putting power again in the hands of
a few trustees and the administrator.
Rowena M. Akana is trustee-at-large
with the Office of Hawaiian Affairs.
Viewpoint articles are the opinion
of the writer and not necessarily the
opinion of West Hawaii Today.
is an attempt
to control
power – again
Globalization at warp speed
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