What yuan devaluation means for China, other countries

The devaluation of Chinese currency, yuan, has rattled the global financial markets, boosting the dollar and stirring concerns about a delay in the Federal Reserve’s plan to raise interest rates.

The yuan’s value had declined 1.9% on 11 August 2015, its biggest one-day drop in a decade, and dropped a further 1.6 percent on 12 August. The move could help Chinese companies by making their products less expensive in global markets. US stocks sank, partly on fears about a worsening economic slowdown in China.

CLICK HERE to know the how and why of yuan devaluation.

via The Hindustan Times

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Saudi Arabia is playing chicken with its oil

In August 1973, Egyptian President Anwar Sadat paid a secret visit to the Saudi capital, Riyadh, to meet with King Faisal. Sadat was preparing for war with Israel, and he needed Saudi Arabia to use its most powerful weapon: oil.

Until then, King Faisal had been reluctant for the Arab members of OPEC to use the “oil weapon.” But as the October 1973 Arab-Israeli war unfolded, the Arab oil producers raised prices, cut production and imposed an embargo on oil exports to punish the United States for its support of Israel. Without Saudi Arabia, the oil embargo would not have gotten very far.

Today, Saudi Arabia is once again using its “oil weapon,” but instead of driving up prices and cutting supply, it’s doing the reverse. In the face of a global slide in oil prices since June, the kingdom has refused to cut its production, which would help to drive prices back up. Instead, the Saudis led the charge to prevent OPEC from cutting production at the cartel’s last meeting on Nov 27.

The consequences of Saudi policy are impossible to ignore. After two years of stable prices at around $105 to $110 a barrel, Brent blend, the international benchmark, fell from $112 a barrel in June to around $65 on Friday. “What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. His answer? “To harm Russia.”

That is partially true, but Saudi Arabia’s gambit is more complex.

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via Reuters.com

Making sense of the growth puzzle

The performance of the Indian economy has been quite enigmatic in the past two-three years. Two successive years of low growth cast a shadow on our growth potential and we went around looking for reasons. Policy paralysis dramatized the issue and remained embedded in our minds. The cabinet committee on investment under the United Progressive Alliance government cleared as much as over Rs.6 trillion worth of investment by February. Yet, growth remained anaemic. We then said that we need reforms and there was some movement on land reforms and foreign direct investment in retail. Then the central government changed. Clearances have continued and the administration has been made to take decisions. Yet, the economic situation is at best stable, although sentiment is sanguine. Are we missing something?

An analysis of the growth path since 2011-12 shows slowdown has been due to a series of issues in which the government plays only a secondary role. The main issue has been with demand, where the level of spending has come down. The three major components: consumption, investment and government have shown limited traction.

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via Livemint

Shale Oil’s Relentless Production Is Breaking OPEC’s Neck

The world’s biggest oil companies faced ruin in the summer of 1931. Crude prices had plummeted. Wildcatters were selling oil from the bonanza East Texas field for a nickel a barrel, cheaper than a bowl of chili. On Aug. 17, Governor Ross Sterling declared a state of insurrection in four counties and sent 1,100 National Guard troops to shut down the fields and bring order to the market. A month later the Railroad Commission of Texas handed out strict production quotas.

That heavy-handed intervention in the free market was remarkable enough. Even more remarkable was who pulled it off. The person in charge of shutting down the wildcatters, National Guard Brigadier General Jacob Wolters, was the general counsel of Texas Co., an ancestor of Chevron. And the Texas governor who ordered Wolters in was a past president of Humble Oil and Refining, a forerunner of ExxonMobil. Big Oil played hardball in those days.

History is repeating itself, with a twist. The stressed-out giants of today are Saudi Arabia and its fellows in the Organization of the Petroleum Exporting Countries. The descendants of the 1930s wildcatters are today’s producers of oil from shale, who are driving down the world price of crude by flooding the market with millions of barrels of new oil each day. At $64 a barrel, Brent crude is down 44 percent since June. The twist is that today’s upstarts aren’t draining oil from neighbors’ plots, as happened in the 1930s. And OPEC can’t call in the National Guard against them. All it can do is gape at the falling price of crude and contemplate the destruction of their cartel at the hands of the Americans, whom they thought they had supplanted for good 40 years ago. Energy economist Philip Verleger says shale is to OPEC what the Apple II was to the IBM  mainframe.

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via Businessweek

The Economist explains: The cost of traffic jams

FEW things unite cultures more than the frustration of sitting in a line of stationary traffic, with no discernible reason for the blockage and no end in sight. From London to Los Angeles, Berlin to Bangalore, seething anger at standstills is a common emotion felt by all drivers. The causes of traffic jams are well understood (accidents; poor infrastructure; peak hour traffic; and variable traffic speeds on congested roads). But what is the cost of all this waiting around?

The Centre for Economics and Business Research, a London-based consultancy, and INRIX, a traffic-data firm, have estimated the impact of such delays on the British, French, German and American economies. To do so they measured three costs: how sitting in traffic reduces productivity of the labour force; how inflated transport costs push up the prices of goods; and the carbon-equivalent cost of the fumes that exhausts splutter out. In 2013 the expenses from congestion totalled $200 billion (0.8% of GDP) across the four countries. As roadbuilding fails to keep up with the increasing numbers of cars on the road, that figure is expected to rise to nearly $300 billion by 2030. Two-thirds of the costs incurred are the result of wasted fuel and time that could be better spent elsewhere, and the remainder from increased business expenses.

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via The Economist.