Comic: How to break up the Euro...

Infinite Possibilities. This hypothetical manual should be much bigger...and there should be ample supply of whisky to play the role we're all familiar with...

Nigeria Deleveraging [1]

"We have destroyed ourselves..." - from a scene in the movie Terminator Salvation

The fuel subsidy probe and the rent-seeking framework which the probe reports have unravelled have confirmed and given legal effect to what a few citizens have surmised about over the years. James Rickards, in his book, Currency Wars, alludes to a concept known as 'rent-seeking' which he describes as "the accumulation of wealth through non-productive means". That is precisely what has been going on in many sectors over time, so it does not come as news that our collective economic prosperity has continually been threatened by the actions (and inactions) of a tiny, influential fraction of our 167 million-strong population. In the body of knowledge that defines economic history, this is not strange. 

For the purposes of speculation and on a lighter note, comic relief, let us equate part of our essence as a systemically corrupt nation to the height of irresponsible debt levels in the developed world today. In doing this, our aim is to investigate, over the next few weeks, the mechanism of  'deleveraging' on corruption in Nigeria - the developed world continues to deleverage on debt - and to find out if indeed we have reached the point of deleveraging. As we proceed, I must emphasize a clear difference between the two independents. Sovereign debt is largely monetary and can be measured to an acceptable degree of accuracy. The innate propensity for financial impropriety and misappropriation of funds, on the other hand, cannot be measured directly; only its effects can be measured. In trying to measure its effects, we may (bearing in mind the natural human proclivity for either understating or overestimating an issue) reach erroneous and typically hazardous conclusions. However, it should be clear to readers that the intent of this material is not to approximate this propensity to a set of mathematical equations, for we have, in view of the global financial crisis, seen how the grand designs of risk valuation can cause social and economic disasters of incalculable proportions.

To be continued...

A Poem: The 99%

Grandma we were at school
And our teacher who's not so cool
Kept repeating 'ninety-nine percent'
Using terms that were indecent

Are you serious?
Tell me child
What did he say to make you so furious

He said that the ninety-nine percent continue to multiply
Without thought to the world's resource supply
And that the fertility of the simple
Continues to threaten the prosperity of the nimble

Then he mentioned Occupy Wall Street
Dismissing them as an ignorant human fleet
Whose incoherent demand for justice
Has pushed the society to the precipice

Is that all he said dear?
Yes grandma that's all
Well he's right!

As Walmart and Co. Besiege Nigeria's Shores

Straight to the matter at hand, one perspective at a time...

Will the entrance of global retail firms into the Nigerian market aid in the tracking of consumer spending? Possibly, but the figures might be distorted as socio-economic inequality continues a northward trend in Africa's most populous state. Contrary to popular belief, I posit that a financially free middle class is being suppressed from emerging; in its place, a CREDIT driven middle class will emerge. As this section of private sector debt increases, any hopes of restoring a savings culture (whether under the mattress or in bonds and equities) will be extinguished. The dynamics leading to the emergence of this class of individuals will be x-rayed in a later post.

Will the prospectively high importation activities of these giant retailers put downward pressure on the Nigerian naira? Most certainly, in the medium to long term, all other metrics remaining constant. Through a cancerous combination of failed policies and widespread corruption, the manufacturing sector has remained dormant for the better part of the existence of the Nigerian state. If the government collects less in taxes than a retailer's activities cost the government (by the selling of the naira), what net economic benefit does the Nigerian state derive? If the Nigerian manufacturing sector were alive and well, the resources would, to a greater extent, be kept within the system. The CBN will have a greater workload as the western traders arrive. 

On a lighter note, the health and pharmaceuticals sector may see an upsurge in revenues from the sales of dietary supplements and other related drugs as the consumption of processed foods and the like outpace their more natural sources. So the need to fill in the nutritional gap cannot be overstated. The concept created by the illusory observance of an emerging, 'financially free' middle class so busy they might not have time to pay religious attention to their nutritional requirements will engender this revenue surge. 

Hon. Hembe's Fatal Presumptions

"The only thing that one really knows about human nature is that it changes. Change is the one quality we can predicate of it. The systems that fail are those that rely on the permanency of human nature and not on its growth and development. The error of Louis XIV was that he thought human nature would always be the same. The result of his error was the French Revolution. It was an admirable result."  - Oscar Wilde

Clear verdict from history. That's all for now. 

The €uro Will NOT Crash: the Chinese View

In the business of international relations and more importantly, the agitation for global dominance, national and regional CURRENCIES have become INSTRUMENTS of WARFARE on one hand and (to use Nixon's phrase) PEACEFUL COMPETITION on the other. From the removal of the gold exchange standard in August 1971 through the Asian currencies meltdown from July 1997, the movement of speculative and non-speculative capital has continued to determine the general prosperity of nations. As noted in the classic, The Alchemy of Finance, speculative capital basically moves in search of the highest total return. I infer that speculative capital movements will form part of the foundations for an "inquiry into the nature and causes of the debt of nations". 

In moving in the direction of bailing out the Eurozone, however, Chinese speculative capital has a longer-term view of the concept of highest total return. A mediating currency is a diplomatic imperative in the unfolding drama between the US dollar and the Chinese renminbi. Factoring in the fact that Chinese holdings of US government and corporate debt continue to go through a coordinated series of devaluation, the inflation-wary, German-led Eurozone will become for China the new DEBT frontier in years to come. Sovereign debt will become one of the hottest commodities over the next couple of decades and so speculative capital will continue to play a crucial role in global resource allocation. The European Union surpassed the United States last year as China's largest trading partner. Discounting the fact that ten of the twenty-seven EU countries do not use the common currency, with Germany, France and the Netherlands constituting a substantial weighting for the Eurozone area, we safely conclude that the survival of the Euro is in the best interest of China. 

The Paradox of LTROs

Even though the long-term refinancing operations (LTROs) of the ECB should realistically stoke the fires of inflation (as the liquidity in the financial system is increased), banks and other related financial services firms who accepted the cheap fiat money being offered by the ECB have, more often than not, chosen to hoard their cash (and many times deposit it again with the reserve bank even though deposit rates are low) in the form of reserves rather than loaning it to the real economy. This may be understandable considering that regulators will be hoping to infer a minimum of 9% capital adequacy ratio from the balance sheet of the banks by June 2012. From this writing, I may safely conclude that the REGULATORS are helping the BANKS achieve the core CAPITAL ratio requirement. So the gold bulls may have to reduce their momentum considerably as we approach H1 2012. This world is interesting...