Beltway Briefing

The top five stories from US politics today.

1. Mitt Romney will travel to Pennsylvania today -- the same as President Barack Obama -- in a clear attempt to cement his position as the frontrunner in the Republican presidential field.

The former Massachusetts governor will attack Obama's economic record, by holding a press conference outside Allentown Metal Works, a closed down factory which Obama visited in 2009 while promoting his stimulus pacakge.

Romney also released a new web video today which contrasts Obama's visit to the plant with local media reports of its closure. It uses his tagline -- borrowed from the Tories in 1979 -- "Obama isn't working".

 

 

Meanwhile, Obama will attend two fundraisers for the Democratic National Committee during his visit. Voters in Pennsylvania appear to be quite equally split on the president -- according to a recent Quinnipiac University poll, 48 per cent approve of his performance as president, while 48 per cent disapprove.

2. Republican voters are not satisfied with any of the current presidential field, if the latest poll by the New York Times/CBS is to be believed. So far, nine candidates have put themselves forward. About 70 per cent of Republican voters said they wished there were more candidates, with only 23 per cent expressing satisfaction with the current field.

Asked to name a presidential candidate they were enthusiastic about, two-thirds of GOP voters said they were not excited by any of them. Mitt Romney and Michele Bachmann fared best, each named by 7 per cent.

However, it is not all bad news for the Republican cohort -- past example indicates that these numbers will increase as the primaries approach. Before the last election, polls showed a similar lack of interest.

3. The former president Bill Clinton shared his thoughts on the current field of GOP candidates -- with the big caveat that he will be "very surprised" if Obama is not re-elected.

Of the former Utah governor Jon Huntsman, he said:

[He] did a very nice, a good job for America as ambassador to China. I think he's quite an impressive man. He's got an impressive family. I had the honor of meeting one of his children once and having a conversation with her. I think that he's refreshingly, kind of, unhide-bound. Just comes across as non-ideological -- conservative, but non-ideological, practical."

He was more reserved in his assessment of former Massachusetts governor Mitt Romney and current frontrunner:

[He] doing a better job as a candidate this time than he did four years ago. [He] comes across as more relaxed and more convicted about what he did do, less willing to just be forced into apologizing for it because it violates some part of his party orthodoxy.

And he said that the early success of Michele Bachmann, Minnesota Representative, he said:

I've been watching her speak at some of these conventions on ESPN, you know, she comes across as a real person. ... The story that they tell is pretty compelling, all those foster children she's taken in, and children she's raised and the work she's done.

4. Herman Cain's latest campaign video appears to owe more than a little something to the Fox News school of thought. As one blogger puts it: "this video proves beyond ANY doubt Obama is a Leftist Marxist".

 

5. There is no rest for the wicked. Senator Harry Reid announced today that the Senate will sacrifice its scheduled week long break for the week of 4 July so that it can continue work on cutting the deficit. "It is often said that with liberty comes responsibility," said Reid, Democratic Senator of Nevada. "We should take responsibility seriously. I'm confident we do. That's why the Senate will reconvene on Tuesday, the day after the Fourth. We'll do that because we have work to do."

This follows calls by Republicans yesterday to postpone the recess. Republicans and the Democrats are trying to reach a deal on raising the government's current $14.3 trillion debt ceiling by the start of August.

 

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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The Asian Financial Crisis 20 years on

In the four years between 1993 and 1996 the tiger economies of Asia led the world in terms of gross domestic product (GDP) growth and stock market returns as foreign and local investors piled in and embraced the opportunity.

In the four years between 1993 and 1996 the tiger economies of Asia led the world in terms of gross domestic product (GDP) growth and stock market returns as foreign and local investors piled in and embraced the opportunity. But trouble was brewing and Thailand was the canary in the coal mine. Strong growth was being funded by ever increasing levels of debt and with offshore interest rates far more attractive than those available at home, US dollars became the funding currency of choice.

While currencies remained pegged to the US dollar risks were minimal but as a growing trade and current account deficit and rising inflation led to increasing overvaluation of the Thai Baht, speculation grew and short-term money started to move out of the Thai currency.

In July 1997, after a futile attempt to stem the outflow, the Thai central bank removed the peg triggering an immediate 25% fall in the currency - by the end of the year it had lost half of its value. The impact on the economy was devastating. Interest rates initially spiked making dollar debt significantly more expensive. Loans started defaulting, peaking at almost 50% of total loans in 1999. The figures reflect the severity of the downturn: GDP took five years to return to pre-crisis levels, consumption – the use of good and services by households - was four years, and private sector loan growth only returned to positive territory in 2002.

Although Thailand was the trigger, the ticking time bomb of unhedged foreign currency debt and a  prolonged period of over-exuberance prevailed across all of South East Asia.  The Philippines and Malaysia were also significantly impacted but the most significant downturn occurred in Indonesia, which, although running a current account deficit only half the size of Thailand, saw its currency go from 2000 rupiah to the US dollar to 16000, and bank loan books fill up with defaulting loans.

Contagion and a severe lack of confidence dented the whole region and although Hong Kong managed to hold on to its peg to the US dollar, a prolonged period of high interest rates and slower growth resulted in a 40% fall in residential property prices and a deflationary period that took many years to recover from. Even South Korea, which was the 11th largest global economy at the time, had to call in the International Monetary Fund (IMF) as interest rates ballooned and the currency weakened.

The recovery, which on average took more than 5 years, was supervised by stringent IMF requirements and has put Asian economies on a much firmer footing. With a few exceptions Asian currencies are free floating, meaning their value is determined by the foreign exchange (forex) markets through supply and demand, and as a result they have much more flexibility to reflect domestic economic cycles ensuring that pressures don’t build. Current and trade accounts, with the exception of India and Indonesia, are now in surplus, with the practice of unhedged foreign borrowing all but ended. Short term foreign debt in ASEAN (the Association of South East Asian Nations) nations has dramatically dropped from 160% to now less than 30%.

The Global Financial Crisis (GFC) in 2008 was borne out of exuberance in the West but not in the East and although Asian economies were impacted by the slowdown in global growth, Asian economic credibility was never called into question.

The only economy that is showing a worrying trend is China. A credit boom following the GFC has seen debt-to-GDP balloon from 160% in 2008 to 260% in 2017. The nature of this debt however is different from that accrued by South East Asian Countries in the late 1990’s. Firstly, most of the debt lies with state owned enterprises (SOEs) and is hence backed by the >$3tn worth of foreign exchange reserves, and most of it is denominated in renminbi. Secondly, although China operates a managed exchange rate regime against a basket of trading currencies, the capital account is closed which restricts the amount of speculative flows. Finally, a lot of the debt is owned by domestic institutions and is long term in nature which reduces the likelihood of enforced withdrawal leading to a liquidity crisis.

The impact of the Asian crisis lives long in the memory of Asian corporates. The days of rapid expansion and growth for the sake of growth have gone and been replaced by conservatism and a focus on cash flow and profitability. Corporate debt levels are at all-time lows while cashflow compares favourably to any other region of the world. Interestingly it is developed economies that are now showing the stresses Asia encountered and recovered from 20 years ago; Asia in comparison looks favourable.

1 Debt can be issued in a various currencies and because the value of these can shift around, hedging is process of protecting yourself against adverse movements, usually through the use of derivatives.

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