Friday, August 21, 2015

Global Economy And The Upcoming Election

I watched "The Donald" perform in Mobile, Alabama last night. He was, well, "The Donald." Holding no punches he launched broadsides at all his favorite targets with Jeb Bush getting more than before and Hillary getting a bit less. Very engaging performance and another solid block in his campaign to be president. Perhaps the most lasting message was that as president he will be a great negotiator for the USA and through this make America great again.

However, in spite of being a businessman with worldwide interests he does not grasp the reality of the global economy. He is still on his campaign against US outsourcing of jobs, being beaten up by every trade agreement we have, being bought out by China, losing our industry to other countries and more. While this makes for good "Jingoism" it falls far short of any understanding of how the global economy functions. His demands would make sense 100 years ago, maybe 50, but they ring hollow today.

Perhaps what he tried to say can be encapsulated in his attack on the Ford Motor Company. He complains that Ford plans to build a multi-billion dollar new factory in Mexico. He said if he were president he would call in Ford and tell them that if they build a plant in Mexico he would slap a 35% tariff on all cars, parts and whatever the company brought into the USA from Mexico. Of course this violates the NAFTA Agreement so he would be in court immediately for merely threatening that action.

What Trump fails to understand is that Ford is no longer an "American" company. It is a worldwide operation that has a headquarters in the USA. But it operates on a worldwide plan that allocates location of factories according to several factors including transportation, availability and cost of skilled labor, markets, availability of suppliers, tax regimes, government supports, government regulations and more. Ford will locate its factories as it determines based on all these factors.

President Obama makes the same mistake when he talks about bringing lost manufacturing jobs back to the USA from abroad. First of all he fails to recognize that more jobs in US manufacturing have been lost to automation of industry than to sending then abroad. All one has to do to understand this is to take a tour of a modern auto factory where you see a forest of robots doing what workers used to do. Second, the jobs that were outsourced were done for sound business reasons and no company will commit industrial suicide by bringing the jobs back.

Before attacking US firms for building facilities abroad and "outsourcing" jobs perhaps Trump should answer why he builds casinos, hotels and golf courses abroad. By doing so he sends US tourist facilities abroad land thus deprives American workers of jobs. You have to have a generous dose of chutzpah to chastise another for doing what you are doing yourself.

Whatever Trump and Obama may say about American companies building facilities abroad or outsourcing jobs, it is not because American workers are more expensive. Consider the following, Toyota has seven factories in the USA, Honda five, Nissan three, Mercedes one, Volkswagen one and BMW one. In fact, BMW's factory has the largest number of employees of any auto factory in the USA. Obviously US workers are competitive with workers in other countries.

As the election heat up we will hear more about the USA and its relation to the global economy. I will continue to try to shed some light on the subject.

Thursday, August 20, 2015

I'm Back

After writing my blogs on a joint web site I am back to writing here. I hope my loyal readers will follow. We have a lot of good issues to address in the coming election year.

Wednesday, June 10, 2009


The results are in, Europeans demonstrated a clear turn to the conservative side of the political spectrum in electing the new European Parliament. The Conservative bloc will have a 100 seat margin over the Socialists. This was a real boost to the current conservative governments in Germany, France and Italy and a real blow to the socialists governments in Spain and the UK.

The elections also saw real gains for the "Green" parties and their bloc in the Parliament as well as the "ultra-nationalists" who are often called the "far right." Hard to see where they will wind up in the Parliament with most assuming that the "Greens" will align with the Socialists and the "Ultras" with the Conservatives.

One of the major reactions was to contrast this win for the "right" with the Democractic victory in the last US election. One Spanish journalist lamented that while the "US moves forward on a progressive path, Europe chooses to stagnate." Of course the writer's political bent is clear. But the contrast did receive much commentary.

So what to make of the outcome? Hard to say that the swing to the right was the result of the "Global Recession" since Sarkozy, Berlusconi and Merkel have been at the helm long enough to be blamed for the economic downturn. Never-the-less the UK and Spanish governing parties quickly blamed the bad economy for their losses.

The gains for the "Ultras" were probably spurred by the anti-immigrant mood in Europe. The recession is a two edged sword here since immigrants taking jobs while locals are losing them in major numbers has generated much of the anger. On the other hand, the recession has already caused the number of new immigrants to fall off dramatically.

The Conservative gain fairly assures that European Commission President Manuel Barroso of Portugal will be installed for a second term. The only glitch here is that his re-election will be held off until the Lisbon Treaty, which reorganizes the European Union government, is adopted. The Irish, who stopped the Treaty by voting against it in a referendum last year, now want to approve it.

All of this indicates that a new, more powerful central European government will start life with a conservative flavor.

Now when and where did we start using the terms "left" and "right" to define our political parties?

Leo Cecchini
June 2009

Tuesday, June 9, 2009


GM stands for “Government Motors,” the US Government comes out with new guidelines for executive compensation for companies slopping at the public trough, Jon Stewart of the “Daily Show” rails against Uncle Sam buying up failed businesses. The public is finally waking up to the salient fact of the “Financial Meltdown of 2008″ and “The Great Recession of 2009,” the economic upheaval has led to Uncle Sam becoming the largest shareholder in US private business and thereby acquiring even more control over the economy.

But of course readers of my blogs already know about this seminal event since it has been the theme of my series on the “New Economy.” I started by reviewing other definitions of the “New Economy” which included a service dominated economy, a global economy and an information/communication dominated economy. To these definitions I added, the “New Economy” means one in which Uncle Sam, who was already the single largest consumer, owned the central bank, and set the rules, has become the largest owner of the economy.

Let’s review that ownership. Uncle Sam already owned, or held the major share of, the traditional government parts of the economy - the military, cutting edge technology (NASA, NIH, CDC, etc), the road network, national lands, and, with his siblings the state and local governments, education, ports, public safety, and the lion’s share of health care. I realize I may have overlooked other parts, but you get the drift. To these he has now added the largest auto maker, the largest insurance company, parts of the major banks, and the mortgage industry. With President Obama’s health plan he will soon own most of the rest of the health care industry.

Wow! This should make every Libertarian and Republican froth at the mouth. And they do. Wait a minute, is Jon Stewart a Libertarian, or worse, is he a Republican?

While my political leanings are well known, usually compared to Attila the Hun, which is a great injustice, since he was a real socialist, if you doubt me, just check his administration, I am not concerned. In fact I applaud Uncle Sam expanding his investment portfolio. If the sovereign funds of such oil powers as Saudi Arabia, Kuwait and the United Arab Emirates are buying up the private sector, why not Uncle Sam? And the beauty of this is that, while sovereign funds must pay money for their purchases, Uncle Sam does it by giving a chit.
I was once a stockbroker and thus am very impressed by Uncle Sam’s portfolio - manufacturing industry, transportation, energy, finance, health care, education, security, communications, and, of course, Treasury bills. While others lament the debt he has incurred in acquiring this stake in the economy, I point to the reality that income from these investments could replace taxes to a large extent, and thus lighten, not increase, the burden on my purse.

Like it or not, we are into the “New Economy” in which Uncle Sam will have more control and say about what happens. Doubt me, just look at the new government guidelines for executive pay in such corporations as GM, Citibank, AIG, and more.

Leo Cecchini
June 2009

Sunday, June 7, 2009


I read an article the other day about how Africa is fairing during the worldwide recession. The author pointed out that Africa is doing better than one would expect, because of its new position as a main supplier of basic materials to the major emerging economies of the world, with Brazil and China leading the pack.

It was almost 20 years ago that I left my last foreign service job in Mexico. In my parting review of Mexico I noted that Mexico, as well as most of the rest of Latin America, was well positioned on the development train and that I had no real concerns about Mexico and the rest of Latin America for the future.

At the same time I noted in other writings that most of Asia was also well along the road to economic success. However, I said that Africa was still the problem child. I had also spent time in the 1980s working in Mozambique, South Africa and Namibia so had some idea of what was going on. I urged that whatever foreign assistance was available, that it be directed to Africa.

Well foreign aid was not redirected to Africa. But something more important happened. China found that Africa offered the raw materials it needed for its rapidly growing industry. The Chinese then set about establishing companies, joint ventures in the main, in several African countries aimed largely at producing raw materials.

China’s effort to obtain raw materials from Africa was clearly evident in its development of petroleum supplies from Sudan. And no matter where you go in Africa today you will find the Chinese busily building similar businesses.

Brazil is a different partner for Africa. It enjoys plenty of its own raw materials. But it is short of petroleum. Enter Petrobras and its explorations in Africa.

I am pleased to report that the fledgling cooperation between African countries and major emerging economies promises to be the engine of Africa’s economic future. I no longer fear for Africa’s future and believe it has joined its fellow developing states in Asia and Latin America on the train to a better economy.

Leo Cecchini
May 2009

Categorized in Uncategorized


I read an article by “Nobel Laureate” Paul Krugman in which he berates Americans for spending beyond their means by resorting to excessive borrowing and then chastizes the Chinese for not spending enough. I believe Mr. Krugman would have served us better if he had explored why this happens, rather than preach prudence to Americans and exuberant spending to the Chinese.

In my opinion the reason Americans have been happy to go into debt to buy is that they have confidence in their ability to earn more in the future and the underlying strength of the American economy. The Chinese spend less and save more because they do not have similar confidence. Of course the present state of the economy has gone a long way to undermining America’s confidence, but we are using record new debt to correct the situation in full confidence we will be able to meet future debt obligations.

More important it is important to understand the basic assumption of debt - you buy something on credit today that you will pay from future income, but you have the purchase today. The reverse would be to save today to buy tomorrow.

My parents used to say, “we don’t use credit, we pay cash for all we buy.” The net result is that our family missed out on some important items - no television, no automatic washing machine, no vacations. Of course my father conveniently forgot about having a mortgage on his home and a lien on his vehicle.

But let’s get real. The average new automobile costs $20,000. The median American household income is about $50,000. At a saving rate of 10% it would take four years to save enough to buy a new car, if the prices stay the same. The average home price is $200,000. Thus it would take 40 years to save to buy that house, and you can be sure the home price would be substantially more.

No, even the Chinese use debt to buy homes and cars. Buying on credit is a fact of life everywhere. The only question is the proper level of debt.

Krugman and most others blame the present recession on excessive debt. They keep crying that the credit house we built is collapsing around us. But hold the phone, we now know that 97% of bank loans are being paid on time. Hardly a cause for a major calamity. Moreover, the US Government is taking on unprecedented new debt to correct the slump.
No, the basic problem is that debt is part and parcel of our modern life but we are still uncomfortable with this fact.

Leo Cecchini
June 2009

Monday, May 25, 2009

The Economy and the Environment

President Obama has linked the environment to economic recovery. He is concurrently taking action to correct the economy and address environmental concerns.

I am writing this blog while sitting in my home in Mallorca, Spain with the tallest mountain on the east end of the island rising directly behind me and the Mediterranean 50 meters in front of me. The house is surrounded by a "Nature Park" or nature preserve. The setting and the views are spectacular in all directions.

I recall about 20 years ago the Spanish government being worried by pollution in the Mediterranean ruining their tourism industry, you see Spain's coasts are the main seaside resorts for Europeans. I am giving to calling it the "Florida" of Europe. Spain's concern was echoed by other Mediterranean countries and the concern led to joint action to clean up the Mediterranean.

My initial reaction to an attempt to clean up a whole sea was total skepticism, how can you clean up thousands of square miles of sea? Well the effort was not to clean up the whole sea, but to clean up the coastal waters. I am happy to report that the effort worked. Twenty years ago I would find lots of flotsom and jetsom when walking along the water's edge. At times the sea itself was clogged with sea nettles who are a sure sign of sewer tainted water. Now the water's edge is clear of all trash and the sea nettles are a rare sight.

My thoughts about the environment also brought to mind another instance in which I was a direct participant. While running a public relations company in Turkey two of my people, an American expert in public relations provided by the US side of the joint venture and a young Turkish woman recently graduated from Ankara's Middle East Technical Institute, came to me to present a proposal for clients. They explained that a group of Turkish companies was worried by threatned new government plans to impose high taxes on plastic bottles that were causing a "solid waste problem."

My immediate reply was to say that Turkey was too poor to have enough such bottles to be of major concern and that there were plenty of sink holes throughout the country where they could be disposed.

I then looked at the details of the situation. I found that the problem was specific to one town in Turkey, Bodrum, a seaside town known in ancient times as Halicarnassus, the home of Herodotus, the universally acclaimed "Father of History." The town was also the site of one of the Seven Wonders of the Ancient World, the tomb of King Mausolus which gave the world the word, Mausoleum. The Mausoleum is long gone but you can see a full scale reproduction in New York City, General Grant's Tomb looking over the Hudson River. It is also the largest tomb in the USA.

But I digress. By 1990 Bodrum had become a popular seaside resort for foreign visitors and Turks with the foreigners staying in the newly built hotels and the Turks spending the summers at their phalanxes of new cookie cutter "villas." In season the town was chock a block with tourists.

Bodrum has a climate like that of Southern California, it never rains but when it does, "it pours, man it pours." These periodic floods served to sweep the town clean of all debris and trash carrying it out to the Mediterranean Sea. This should have been the end of the story but a popular treat for visitors to Bodrum was to take trips in glass bottom boats from which they could see the remains of sunken ancient Greek ships that were the backbone of Greece's commerce based economy.

Imagine looking through a boat bottom to see 2500 year old wrecks resting on the sea floor. And see those ancient amphoras that held wine and olive oil. And see those plastic bottles emblazoned with Hassan's Bleach, Hikmet's Detergent and Coca Cola. What, how did these modern bottles wind up among the amphoras of the sunken wrecked ships? Well the rains washed the bottles out to sea where they filled with water and sunk to the bottom with many falling among the wrecks.

Eureka I said, we are not dealing with trash pollution but "visual pollution." All that had to be done was to keep the bottles from being washed out to sea and spoiling the sight of ancient ships on the sea floor. We devised a PR campaign featuring bottle collection centers where people could bring their plastic bottles to be properly disposed of. The centers also took in glass bottles and other refuse since all was subsequently dumped into the sink holes. It worked.

These personal experiences with enviornmental concern led me to a clear realization, action to save the environment comes when problems threaten your pocketbook. I fear that President Obama will not have much luck with his environmental plans until he can show clear damage being done to our economy. It is no accident that he has linked the two. But he must make the link clear and urgent.

Leo Cecchini
May 2009