Does China's Growing Overseas Investments Signal a Global Power Shift?

RJ Note: Interesting story from Emory University--- Thought you'd be interested in reading it as well.

On July 20, Chinese Premier Wen Jiabao announced that the country intended to invest some of its record-breaking $2 trillion foreign exchange reserve to accelerate China’s overseas investments in natural resources and resource-extraction companies.

Although Chinese officials have refused to specify how much of their reserve they plan to reinvest, and some experts cite practical reasons China’s foreign currency reserve should be kept intact, on September 1 the country’s state-controlled lender, China Development Bank, formed a $5.1 billion investment fund that will be used in part to help Chinese companies acquire essential natural resources abroad.

Regardless of the ultimate dollar value of China’s overseas investment plans, professors at Emory University and its Goizueta Business School see these moves as the latest signs that China is increasingly in the driver’s seat of the world economy.

The tactical move Wen announced is part a larger strategic shift that China is making to transform itself from an export-driven economy and toward an economy fueled mostly by Chinese consumers, according to Jagdish Sheth, a chaired professor of marketing at Emory University's Goizueta Business School and author of the book Chindia Rising: How China and India Will Benefit Your Business (Tata-McGraw Hill, 2007).

Building a huge consumer market in China makes good strategic sense, Sheth says—and it’s similar to a shift the U.S. economy made in the late 19th century.

But why would a strong domestic economy entail buying commodities and assets outside China? The reason is that unlike the U.S., which had abundant resources but needed technology to harvest them, China has technology but limited resources. “In order to achieve its vision, its biggest challenge is going to be access to natural resources, including agricultural resources,” Sheth says. “China has great human talent, but it does not have sufficient natural resources within its own geographical boundaries,” he says.

Wen’s announcement is far from the first sign of the country’s plans to diversify the economy. Over the past six years, China’s overseas investments have risen geometrically, from $143 million in 2002 to $40.7 billion in 2008, according to Chinese government statistics, and up over 63% in 2007 alone.

In search of energy and other natural resources, the Chinese have been reshaping the face of Africa. Some authorities estimate that there are now more than 750,000 Chinese expatriates at work throughout the continent, many involved in developing mines and oil fields. Now they are reportedly looking farther afield, particularly to natural resources and resource companies in South America.

Although China has been criticized for its involvement with unsavory regimes such as the government of Sudan, Robert Ahdieh, a professor at Emory School of Law who has a specialty in international trade law, doesn’t see an ideological agenda involved in these investments. The Chinese are in such places, he says, mainly because assets in more stable and desirable spots were bought up long ago by Western companies. “The Chinese didn’t randomly say we only want to buy oil from rogue states,” he explains. “It’s just that the rogue states are the only ones on the table.”

Why the obsession with commodities? China’s reasoning, Ahdieh believes, is that getting hold of commodities in 10 years’ time could be difficult if India and China continue to grow as quickly as they have lately. “If their growth rates and industrialization pace continue, the level of demand for commodities is going to look very different in 10 and 20 years than it does today,” Ahdieh says.

The decision to cut down its foreign exchange reserve might seem like an internal matter for China, but it has significant implications for the U.S. In June, China, currently the largest holder of U.S. Treasury securities, reduced its holdings of U.S. Treasury debt by 3.1%, the largest percentage drop in eight years, according to Reuters and a Treasury Department report issued on August 17. In addition to the clear hint that China’s leaders may be tiring of the dubious privilege of serving as America’s largest creditor, the presence of a new competitor in the scramble for natural resources heightens geopolitical rivalries in an arena once dominated primarily by U.S. and European companies.

If China were to reduce its foreign exchange reserve, it could have a huge impact on federal borrowing costs and interest rates generally, since many of China’s foreign exchange assets are thought to be kept in U.S. Treasury bonds. (China does not divulge the exact breakdown of its foreign currency stockpiles.) “At the worst, if they really stopped buying they could throw America into a recession because they are now a major purchaser of the Treasury securities we have to sell in order to finance the government deficit,” explains Jeffrey Rosensweig, a professor of international finance at Goizueta and director of Emory’s Global Perspectives Program.

But Rosensweig and other professors don’t anticipate China making this move, except perhaps in a gradual way over time. It’s not in China’s interest to see the dollar go down or to see its best customers out of work, says Rosensweig.

“They may move some of the money they hold in foreign exchange reserves into some of those investments, but I don’t expect them to move a very significant part of it,” agrees Narasimhan Jegadeesh, a chaired professor of finance at Goizueta.

Levent Bulut, a visiting assistant professor of economics at Emory, is also of the mind that China will instead “gradually try to invest in profitable areas in the real market, in the real economy.”

The question remains if the Chinese can’t get away with a large-scale diversification right away, what is the meaning of Wen’s announcement? Rosensweig says we should read Wen’s announcement partly as a warning to the U.S., “reminding us that we’re now in a very vulnerable position. We can no longer just call the tune and lord it over other economies; part of it is saying, `you better respect us, because we could break you.’”

At the moment, it may be only a threat. Although the Chinese seem stuck in what both Chinese and American economists call “the dollar trap,” Emory scholars don’t appear optimistic that they will stay in that trap for good. When they finally escape, Americans could have a major adjustment ahead.

Although the U.S. has dealt with competition before, such as with Germany and Japan, Sheth argues that the competition with China will be different. “The scale economy of the domestic market China has is much larger and that gives it enormous advantages, both in making products but also in sourcing raw materials because you become such a big buyer,” he says.

The volumes demanded by a market of 1.3 billion could create a “Wal-Mart effect,” in Sheth’s view, in which China becomes the dominant buyer of a number of commodities, giving it a built-in cost advantage over other markets.

If that happens, Israeli business strategist Eli Goldratt has quipped, in ten years, the U.S. will have moved from the world’s number one power to “an island of 300 million, six weeks from China.”

Sheth argues that the rise of China to economic superpower isn’t at all far-fetched. Already, the U.S.’s position in the world has changed profoundly, he says. “Think about it—ten years ago, who would have ever imagined that China would become the biggest lender to America?”

While some critics point to the many challenges China faces—the need to feed and employ an enormous population; a government that lacks an electoral mandate; huge gaps between rich and poor—others see, as does Sheth, a country that has made precious few missteps on its way to economic power and is unlikely to start now. “In my view, they’ve done everything right,” Sheth says.

On the other hand, U.S. policy has few defenders among the faculty, some of whom see a much less important future ahead for the U.S.

“It’s our own bloody fault,” says Rosensweig. “We’ve run deficits for so long and had to borrow to finance them, and our own people have not saved enough to buy the bonds themselves—we’ve dug ourselves a debt trap.”

Sheth sees one problem that looms even larger: “The biggest problem in America is we are in a denial stage. We still don’t accept where the world is going and adapt accordingly.”

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Federal Cigarette Tax Increase and Current Economy Will Change Smoker's Habits

RJ Note: I don't smoke and am certainly not interested in it. Besides the obvious health risks, the overall stench on the clothes would be enough to deter me. If I did smoke, I would be in fumes over this tax. Seems like it's a way to be sure that a select group of people will be paying for this new improved government program. If the program and higher tax does provide smokers the incentive to smoke, what will the government have to tax next to pay for this program? Just wondering.

/PRNewswire/ -- On April 1, the federal cigarette tax will increase by 62 cents to a total of $1.01 per pack, to fund the expansion of the State Children's Health Insurance Program that was signed into law earlier this year.(1) A new survey shows that the April 1st federal price increase on cigarettes and the current economy are big concerns for smokers and will change their current smoking habits.(2)

The survey, commissioned by the marketers of Nicorette, showed 70 percent of smokers say that the current price of cigarettes is already very expensive and is one of their main concerns about smoking, second only to health concerns.(2) For survey respondents over 45 years old, the price of cigarettes was the most cited concern.(2) Further, 56 percent of smokers say the April 1st price increase will prompt them to smoke fewer cigarettes and 72 percent say the price increase on cigarettes would increase their intention to quit.(2)

Smokers also say the current economy is a big concern and it will prompt them to change their smoking habits.(2) Forty-seven percent of smokers say they would cut back on cigarettes because of the economy.(2)

"Research shows that smokers are more likely to try to quit when the price of cigarettes goes up," said Dr. Frank Chaloupka, professor of economics at the University of Illinois at Chicago and affiliate of the National Bureau of Economic Research. "Given the recent tax hike and the state of the economy, now would be a great time for smokers to re-evaluate how smoking affects their finances and calculate how much they could save by quitting. A typical pack-a-day smoker could be spending approximately $2,000 each year on cigarettes, but no matter how expensive it is to smoke, quitting smoking is a big challenge."

Almost half of smokers currently quitting, or more likely to quit smoking, noted in the survey that they do not plan to get help.(2) In fact, almost half (48 percent) said they would prefer to quit cold turkey or gradually cut down smoking without assistance.(2) Unfortunately, research shows only 3-5 percent of smokers who quit without the help of cessation tools are successful long-term.(3) The same research shows smokers are twice as likely to be successful if they use therapeutic nicotine rather than quitting unassisted.(3)

"Tools for cessation, such as therapeutic nicotine, social support and counseling have been proven to significantly increase a smoker's chances of quitting successfully," said Saul Shiffman, Ph.D., professor in the departments of psychology and pharmaceutical science at the University of Pittsburgh. "Therapeutic nicotine products, like Nicorette White Ice Mint gum, are a safe and effective approach to quitting, and can help a smoker manage cravings and withdrawal symptoms during the quitting process."

Smokers interested in quitting due to the federal tax increase can access free tools and resources at www.nicorette.com. Nicorette is giving away a free starter pack of Nicorette White Ice Mint gum while supplies last.

About the Survey
A national survey of 1,046 U.S. adult smokers was conducted in March

2009 by Richard Day Research through Global Market Insite, Inc. (2) The survey was balanced according to age, gender and regional dispersion of smokers found in the 2007 National Health interview Survey (NHIS) and the 2007 Behavioral Risk Factor Surveillance System survey, as reported by the U.S. Centers for Disease Control and Prevention.(2) The survey was conducted on behalf of Nicorette.

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DearDaddy.com: New Website Chronicles Minnesota Family's Life During the Great Depression

In her 80s, Martha Linsley bought a small typewriter from Montgomery Ward, taught herself to type, and transcribed the hundreds of letters she and her husband and their two children wrote to one another. Their correspondence may very well comprise the most extensive written insight into the day-to-day lives of a family dealing with the challenges of the Great Depression. After decades of a 5-generation family effort, the first phase of the letters, daughter Ruth's memoir of their adventure, the children's drawings, photos, and family Cookbook are now posted on the new website - http://www.deardaddy.com

/PRNewswire/ -- They were the victims of a mortgage scam and greedy lenders, the nation's crops were failing in record-setting heat, unemployment was soaring, the economy was in free-fall -- the lame duck president was overwhelmed, but a newly-elected president was promising change. It was the early 1930s...

Despite the national crisis, James and Martha Linsley planned their strategy for financial independence and a farm of their own. After "qualifying" for a shady mortgage deal on a 160-acre parcel, they were encouraged to hear about a new government loan program available to assist farmers. They decided that James would stay in Minneapolis and continue working his ten-year job as a streetcar conductor, while Martha and the children, Ruth (9) and John (7), would move to their "farm" near Park Rapids, Minnesota, about 160 miles north. Martha and the kids could live inexpensively, and they were sure that, with a federal loan to get them started, they would soon be full-time farmers.

The "farmhouse" turned out to be a 15-foot square dilapidated cabin with no running water or electricity. Through two brutal Minnesota winters while temperatures dipped as low as 38 below zero, they lived this arrangement from the summer of 1932 until the fall of 1934, writing letters to each other almost daily.

Feisty Martha Linsley was a city girl, raised in a Minneapolis orphanage, where talking at the dinner table was prohibited. She was a high school physics and math teacher, a University of Minnesota graduate, with Masters level education in Greek and Latin. James was a country boy who left school after eighth grade. A devoted husband and father, he was a life-long voracious reader, and had a passion for horses, farming, and carpentry. Daughter Ruth had a vivid imagination and gift for expression. Her father was fond of saying, "The only time Ruth is quiet is when she's eating cherry sauce -- with pits." John was a creative, gifted student who continually challenged his one-room rural school teachers, was kicked out of school numerous times -- and was later nominated for a Nobel Prize in Physics.

Their dream of farming was never realized, but they were all transformed by the experience. And over 75 years later, there is an odd resonance to their struggles and concerns, and possibly a lesson in the way they often found comfort and entertainment in the simplest of things.

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58% of Americans Not Cutting Back on Holiday Spending This Year, New Survey Reveals

/PRNewswire/ -- While most Americans have been directly affected by the sharp decline in the nation's economy, a majority still feel a sense of obligation, both to their family and the country, to maintain holiday gift giving and celebrations, according to a survey of 1,762 adults.

More than 54% of survey respondents know someone who has become unemployed in the past 6 months. However, 58% report they expect to spend the same amount this year on the holidays as they did last year, according to the survey, which was sponsored by Dollar Savvy, a new magazine and website (www.getdollarsavvy.com) dedicated to providing Americans with effective money-saving ideas.

Respondents are aware of the connection between their holiday shopping plans and the economy:

-- Over half (51%) say they have a responsibility to keep shopping to
help the economy.
-- 57% of respondents say regardless of the nation's economic reality,
they have an obligation to provide their families with a wonderful
holiday season.
-- 20% of respondents acknowledged they are dipping into savings to pay
for holiday celebrations.

Survey respondents expressed a sense of optimism about the future, and noted that the economic downturn is helping readjust priorities in a positive way. Among the findings:

-- 61% say the holidays will be more joyful this year.
-- 78% said hard economic times remind them of what is really important.
-- 73% said America will be stronger once we solve our economic problems.
-- 90% percent say the holidays are about family and faith, not gifts and
meals.

When it comes to gift-giving, Americans will continue to give store-bought gifts, but 20% said they plan on giving more homemade gifts this year. In keeping with their perspective on the economy, 53% said they expect the number of gifts they receive this year to be less than last year; 41% said they expect it to be about the same.

Additional holiday spending results:

Amount Spent
-- 9% plan on spending more
-- 46% plan to spend the same amount on gifts as last year
-- 43% plan on spending less
-- The average amount expect to spend is $553

Gifts to Children
-- 56% plan on giving the same number of gifts to children as they have
in the past.
-- 22% plan to give less
-- 13% plan to give more
-- 8% don't know

Gifts to Spouse
-- 52% plan on giving the same number of gifts to their spouse
-- 27% plan on giving less
-- 7% plan on giving more
-- 14% don't know

Gifts to Friends
-- 51% plan on giving the same number of gifts to friends
-- 37% plan on giving less
-- 3% plan on giving more
-- 8% don't know

"Despite economic hard times, Americans continue to have a deep, heartfelt connection with the holiday season," said Neil Wertheimer, Editor in Chief of Dollar Savvy and getdollarsavvy.com. "While they believe that the gifts will be fewer this year, and the meals a little less extravagant, the joys of the holidays will be every bit as great, if not greater, than in years past."

Other survey results included:

-- 61% of respondents said they will be sending store-bought holiday
greeting cards this year; 31% are planning to send e-mail cards; and
12% are sending homemade cards. 13% of respondents say they will be
including a family-update letter.
-- 42% said they will spend less this year on decorating their home for
the holidays; only 6% said they will spend more than last year.
-- 25% said they will spend less on holiday food this year; 15% said they
will spend more.
-- 27% said they will give less money to charity this year; 11% said they
will give more.
-- 48% say that ham will be the main course at their holiday dinner,
followed by turkey (43%), and beef (16%). Only 6% said they will be
serving seafood, and 1% said they will be serving lamb.
-- 38% said they will be dining at restaurants less during the holiday
season.
-- 11% said they would be dining out more.
-- 41% said they will be traveling less during the holiday season.
-- 14% said they would be traveling more.

About the survey

The survey was conducted on December 9 and 10 by Socratic Technologies, a full-service marketing research agency that regularly conducts global Web-based surveys. The respondents were a cross section of women and men who subscribe to one of five broad-interest consumer magazines operated by the Home & Garden Group of the Reader's Digest Association Inc. Survey respondents had a median age of 52 and median household income of $75,400. The survey had a 2.3 percent margin of error.

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New Survey: Nation's Food Banks Report Dramatic Increase in Demand for Emergency Food Assistance as Unemployment Rises and Economy Worsens

/PRNewswire-USNewswire/ -- Food banks across America are reporting a 30 percent increase in requests for emergency food assistance, according to a new survey conducted by Feeding America, the nation's largest hunger relief organization. At the same time, a new public opinion poll released today by the organization finds that many Americans are unable to provide adequate amounts of nutritious food to their families, due to the current economic crisis.

Feeding America urges Congress to pass economic recovery legislation that will offer desperately needed relief to both low-income Americans and the nation's food banks, as the recent surge in unemployment has pushed millions to the brink of hunger. Additional support for emergency feeding through food banks and longer term assistance through food stamps will also generate economic activity that will stimulate local economies as well as relieve the hunger caused by the recession.

Feeding America received responses from 160 of their 205 food bank members for the "local impact survey." It gauged increases in requests for emergency food assistance and how the nation's food banks are coping with the dramatic spike in current demands. The national poll was commissioned by Feeding America to assess the impact of the economic downturn on low-income households.

"The economy is affecting all Americans, but it is low-income Americans who are suffering the most," said Vicki Escarra, president and CEO of Feeding America. "Skyrocketing unemployment rates, increasing food costs and high fuel prices for the majority of this year have put an unprecedented level of need on our food banks. Unemployment projections indicate that the situation is likely to get worse in the near future. Low-income Americans need increases in food stamps and our network needs more food from the federal government to ensure that we can keep feeding the millions of people turning to us for help."

More than 90 percent of food banks respondents cited increases in food prices and unemployment as the primary factors contributing to the increase in requests for emergency food assistance. More than 60 percent cited fuel, and 52 percent cited the inadequacy of food stamp benefits.

Seventy-two percent of food banks reported that they are not able to adequately meet the needs of their communities without adjusting the amount of food distributed - offering smaller amounts of food and groceries to those in need - or their operations.

"We are in a national crisis," said Escarra. "We have some food banks reporting as high as a 65 percent increase in need. There are record numbers of new men, women and children, who never thought they would need food assistance. Some of those seeking help are so unfamiliar with available emergency food assistance that they are having difficulties navigating how to access food."

Many low-income Americans, who are living just above the income eligibility threshold for the Supplemental Food Assistance Program (formerly named the Food Stamp Program), are experiencing food insecurity for the first time. In the public opinion poll, 63 percent of respondents reported that in the past year, their food didn't last and they could not afford to buy more. Forty percent ate less than they felt they should, and 36 percent cut the size of meals or skipped meals because there wasn't enough money for food. Forty percent reported that they have had to choose between paying for food and utilities in the past year. One in three food stamp recipients reported that their benefits only lasted for two weeks or less.

Additionally, the financial crisis is compromising low-income Americans' ability to access nutritious food at grocery stores. Nearly 70 percent of low-income respondents reported that they are cutting back on food spending and 62 percent reported having to make more shopping trips for food because they didn't have enough money to buy everything at one time.

"Winter is here, and we know that millions of families struggle between heating their homes and eating. This is not a choice that anyone in the United States of America should have to make, and too many more families are going to be faced with these decisions in the coming weeks. I urge the Congress to pass economic recovery legislation as soon as they return to Washington that brings hope to the 25 million Americans we feed each year," said Escarra.

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Medicare, Social Security Owe Up to $52 Trillion to Current Retirees and Workers

RJ Note: Now ain't this a kick in the ole wallet.

/PRNewswire-USNewswire/ -- If the federal government stopped the Medicare and Social Security programs tomorrow -- collecting no more payroll taxes and allowing no more accrual of benefits -- it would still owe up to $52 trillion to those who have already earned these benefits, according to a new study by the National Center for Policy Analysis (NCPA).

"The numbers are staggering," said Andrew Rettenmaier, an NCPA senior fellow and coauthor of the study. "No one thinks we are going to end these programs," he said, "but if we account for federal obligations the way private pensions and state and local governments are required to, the federal government owes up to $52 trillion (in current dollars) as of today."

To put the numbers in perspective, the size of the entire U.S. economy is $14 trillion. The newly released study determined that:

-- An estimated $9.5 trillion is owed to current retirees -- an amount
equal to almost $250,000 per person 65 years of age and older in 2008.
-- Adding the liability owed to those nearing retirement (55 and older)
more than doubles the accrued debt to $20.6 trillion.
-- Adding the benefits accrued by younger workers brings the total to as
much as $52 trillion. The beneficiaries include all retirees, as well
as anyone in the workforce above 22 years of age.

If Medicare and Social Security continue on their current course, the obligations of taxpayers will grow. In the spring, the Social Security/Medicare trustees reported that if Social Security and Medicare were to continue indefinitely, the present value of the unfunded obligation is $101.7 trillion, or seven times the size of the national economy.

Currently, the two programs combined are spending more than they are receiving in premiums and dedicated taxes:

-- By 2012, one of every 10 income tax dollars will be needed to close
the funding gap for Social Security and Medicare.
-- By 2030, almost half of all income tax dollars will be needed to close
the funding gap.
-- By 2070, almost 80 cents of every income tax dollar will be needed to
cover the cash-flow deficit in the two programs.

"Without reform, paying for elderly entitlements will crowd out other federal spending or will require substantial tax increases," said Rettenmaier.

"The longer we postpone reform, the worse the financial picture becomes," he said. "Procrastinating will make the cost of reform even more painful."

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A Good Rummage Sale Brings in Extra Cash

RJ Note: With all the news today of the investment bank failures and buyouts, you may be feeling a little uncertain about the future. Hold on, it's going to be a bumpy ride for some time. In the meantime, here's something you can do which will benefit both your household and help another one too.

(ARA) - As the dog days of summer pass and cooler weather begins to settle in, you may begin to notice a lot of unwanted items around your house. Perhaps that vase you bought for a summer party is collecting dust in your pantry, or gardening tools you once used to landscape are blocking space you will soon need for winter boots.

Before you toss them, remember that those unwanted items could bring in some extra cash for new fall and winter supplies. Turn what you accumulated over the summer months into a quick profit by holding a rummage sale. They are growing in popularity for both sellers and buyers as the slow economy is causing many families to rethink their expenses.

“The Healthy Housekeeper” and cleaning author, Laura Dellutri, has some excellent rummage sale tips to successfully turn your junk into another person’s treasure.

* Pick a time for your sale.
Remember, if you advertise your sale to open at 7 a.m., the professional rummage sale people will be parked and waiting by 6:45 a.m. Before work, during the lunch hour and after work on weekdays are also good times to catch more prospective buyers.

* Enlist the aid of your friends and neighbors.
Multi-family rummage sales work the best, because they allow you to have helpers monitoring the sale, the cash table and provide extra workers for breaks. Schedule duties in advance to give everyone involved the chance to plan their lives around the sale.

* Make sure your unwanted items are presented shiny and clean.
For plastic, metal, glass and other hard surfaced items you plan to sell, use Mr. Clean Disinfecting Wipes with the fresh scent of Febreze to kill 99 percent of bacteria. If the plastic toys, alloy wheels and shoes are covered in grime or scum, Mr. Clean Magic Eraser with Febreze can give them a new look and refreshing scent, enticing shoppers to pick them up.

* Show your customers what a deal they’re getting.
Attach a current retail price for your items next to your price. It takes a little research, but it can quickly convince a shopper to buy your items as they calculate the money they’re saving by not purchasing new.

Start collecting the unused items in your house today and prepare them to bring in extra money for your pocket.

Courtesy of ARAcontent

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