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The World Is Curved
written by David M. Smick
Studio : Portfolio
by Portfolio
Release Date : 2008-09-04
Publisher : Portfolio
Released : 2008-09-04
Availability : Usually ships in 24 hours
Number of Items : 1
Avg. Customer Rating: (based on 27 reviews)
List Price : $26.95
Our Price : $9.99
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Product Description |
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David Smick keeps a low profile, but experts consider him one of the most insightful financial market strategists in the world. For more than two decades, he has conferred with central bankers (such as Alan Greenspan and Ben Bernanke) and advised top Wall Street executives and investors, from George Soros to Michael Steinhart to Stan Druckenmiller. Political leaders (from Bill Bradley to Jack Kemp) have regularly sought his policy advice.The World Is Curved picks up where Thomas Friedman's The World Is Flat left off, taking readers on an insider's tour through the private offices of central bankers, finance ministers, even prime ministers. Smick reveals how today's risky environment came to be -- and why the mortgage mess is a symptom of potentially far more devastating trouble. He wrestles with the two questions on everyone's mind: How bad can things really get in today's volatile economy? And what can we do about it?Drawing on riveting anecdotes in language anyone can understand, Smick explains:How the churning cauldron we call China (the next great bubble to burst) represents a powerful threat to everyone's pocketbook How Japanese housewives have taken control of their nation's savings, and why it matters to us How greed-driven bankers and investment bankers have put everyone's pensions and 401(k)'s at risk Why today's "incredible shrinking central banks" may not be able to save us when the next crisis hits Why the big-money Russian, Chinese, Saudi, and Dubai sovereign wealth funds represent a tectonic shift in global financial power away from the United States, Europe, and Japan Why the world desperately needs a "big think" financial doctrine to guide today's dangerous ocean of money The World Is Curved is the rare book that speaks simultaneously to the Wall Street, Washington, and London elite, yet its apt storytelling shows Main Street readers how to survive in these turbulent times. |
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Insightful |
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Very informative book. Provided excellent insight into China and the possible pitfalls that every investor should consider. Also, the chapter on Japan was of significance especially given the parallels of their crisis and now ours. Hopefully, the US will not make the same mistakes, but after reading the book one realizes that the government and private sector actions and rhetoric are earily similar to the mistakes of Japan's lost decade. |
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The biggest threat: the demise of globalization. Read why... |
Within the books I have read about financial crises, the authors develop one core analytical concept. For Morris in the excellent The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash the concept is the over leveraged hedge funds supporting the securitized credit markets. And, how their demise may cause crashes in commercial real estate, credit cards, etc... For Kindleberger in his outstanding Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) the concept is the Hyman Mynski model explaining how the credit cycle exacerbates the business cycle. For Shiller in The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It the concept is an improved economic information infrastructure.
Smick concept is the demise of globalization. Smick states globalization fuels trade and rising living standard. The U.S. with the broadest markets has been a huge beneficiary of globalization. But, Smick warns globalization may wane because of:
a) protectionist policies out of Washington;
b) politics of class warfare with rising taxes on capital;
c) upcoming over-regulation of the financial markets; and
d) restriction on foreign investments.
In combination those policies would impair trade, capital flows, economic growth, innovation, and job creation.
One of Smick's interesting "curve" is that Western Central Banks do not control much. Greenspan in "An Age of Turbulence" also stated this is because world capital markets have become so large. Smick mentions that pension funds control $25 trillion, Japanese retail investors $11 trillion, OPEC $4 trillion, Asian central banks and their sovereign wealth funds $3 trillion, and hedge funds and private equity $3 trillion. In such an ocean of money, the Federal Reserve controls only risk free short-term rates. Other short-term rates depend on credit spreads controlled by traders. And, Fed has no control whatsoever on long term rates.
Another interesting Smick curve is his dire China outlook. The Communist Party Leadership controls everything ineptly. They control the banking system as their political instrument. Thus, banks are devoid of any credit management. The Leadership controls monetary policy and maintains rates that are way too low. Those have caused bubbles in real estate, stocks, and industrial production. When those bubbles burst, it will have a devastating deflation impact on the World. The Chinese have no social safety net. So, they save everything resulting in plummeting consumer demand from 50% of GDP in 1992 to only 36% in 2006. The only way China can grow is through exports supported by an artificially low Chinese currency. Smick indicates China does that to protect its unproductive domestic companies that employ 97% of the people and account for only 45% of exports. If the Chinese let their currency float upward, it would cause millions of unemployed. The Leadership censors information that prevents innovation and keeps the economy stuck in low-cost manufacturing. To read more on this, I recommend Zakaria's The Post-American World. Also, China one child policy has caused the population to age rapidly; that will lower economic growth.
Smick's views on Japan are not encouraging because:
1) society is aging rapidly;
2) its culture that forbids risk taking;
3) its excessive savings rate and weak domestic demand;
4) Bad government policies that turned their asset bubbles in 1990 into two decades of economic stagnation;
5) Japan is a fiscal basket case with a public Debt/GDP ratio of 170% meanwhile the U.S. is under 40%. Thus, the Bank of Japan has no flexibility and has to keep rates low not to exacerbate their Budget Deficit.
Smick is not anti-regulation. He promotes better disclosure so traders can evaluate complex securities without relying on bond ratings. He would reform the credit rating agencies by eliminating conflict of interests (they are paid by the bond issuers they rate!). Securitization must become transparent to reestablish trust in financial innovation. He would forbid off-balance sheet vehicles so regulators could accurately measure banks' risk based capital.
However, Smick is concerned the upcoming regulations will over reach. A Sarbanes-Oxley II could cause the demise of the U.S. financial service industry leadership.
Smick sees evidence mercantilism is rising. The WTO's effectiveness is waning. The Doha round was a disaster. Government trust in free trade and free capital flows is declining. The U.S. and French farm subsidies have reached egregious levels.
His Japanese contact, Tadasi Nakamae envisions a world plagued with overcapacity. China and all emerging market economies will exacerbate excess capacity. Manufacturing profitability will plummet. The West environmental standards will result in protectionism against Asian products. Asians will respond by increasingly closing their markets to foreigners. The better alternative for them would be to stimulate domestic demand. Both, Japan and China have failed to do so. Europe will muddle through in a slow growth, high unemployment, and protectionist mode. The U.S. will have the headache of dealing with a huge pile of Chinese goods on the world markets. He sees a nefarious combination of contracting trade with rising trade imbalances.
At the end, Smick summarizes that the most formidable curves we will have to deal with include:
1) growing fiscal imbalances due to social entitlements throughout the industrialized World;
2) the Chinese excess capacity juggernaut that will cause deflation worldwide;
3) class warfare leading to rising taxes against capital;
4) lack of trust in the financial system that will lead to restriction on capital flows.
Together those curves will weaken economic growth and increase market volatility.
However, if Smick had written his book four months later, he would be more positive. That's because he would have liked the government policy responses so far, including:
a) The U.S. Treasury and Bernanke's unprecedented steps to shore up the economy and the financial system;
b) Obama's upcoming cabinet of pragmatic centrists that will provide the leadership Smick wants;
c) Obama's upcoming huge infrastructure fiscal stimulus.
But, Smick fully deserves the credit of uncovering all the nasty curves we should be aware off beyond the housing crisis. |
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a big bunch of interesting ideas, not worth the money |
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Overall I enjoy the many interesting discussions in the book on macro-economics, international finance and issues on public policy decision making. But the materials presented by the author often lack clear direction. You will find the author presents a large number of ideas without giving a clear conclusion or summary at the end of the chapters. After I read through each chapter, although interesting, I had a sense of not knowing what exactly I just learnt. May be this is the nature of macro-economic issues, which are often complex and the various factors affecting the outcomes can have different effects if observe / apply at different times. But I still think the author can do a better job of summarizing his ideas and present his materials in a more organized way. |
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Not because of content.... |
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I wouldn't know whether this book is good or not. The reader seemed adequate, if not terrific. But, 3 of the first 5 discs had flaws and skipped and sputtered and made whole sections incomprehensible. We had a car trip ruined. |
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AARP Crash Couse in Estate Planning |
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Excellent overview of a complex subject. Relatively easy to read with lots of examples. |
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