The Deadly Toll of Abortion by Amateurs

A woman in Berega, Tanzania, who sought care after a botched abortion. In Tanzania, where abortion is illegal, the maternal death rate is high in part because of failed abortions. (Béatrice de Géa for The New York Times)

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Denise Grady
June 4, 2009 - The New York Times

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BEREGA, Tanzania - A handwritten ledger at the hospital tells a grim story. For the month of January, 17 of the 31 minor surgical procedures here were done to repair the results of "incomplete abortions." A few may have been miscarriages, but most were botched operations by untrained, clumsy hands.

Abortion is illegal in Tanzania (except to save the mother's life or health), so women and girls turn to amateurs, who may dose them with herbs or other concoctions, pummel their bellies or insert objects vaginally. Infections, bleeding and punctures of the uterus or bowel can result, and can be fatal. Doctors treating women after these bungled attempts sometimes have no choice but to remove the uterus.

Pregnancy and childbirth are among the greatest dangers that women face in Africa, which has the world's highest rates of maternal mortality - at least 100 times those in developed countries. Abortion accounts for a significant part of the death toll.

Maternal mortality is high in Tanzania: for every 100,000 births, 950 women die. In the United States, the figure is 11, and it is even lower in other developed countries. But Tanzania's record is neither the best nor the worst in Africa. Many other countries have similar statistics; quite a few do better and a handful do markedly worse.

Eighty percent of Tanzanians live in rural areas, and the hospital in Berega - miles from paved roads and electric poles - is a typical rural hospital, struggling to deal with the same problems faced by hospitals and clinics in much of the country. Abortion is a constant worry.

Worldwide, there are 19 million unsafe abortions a year, and they kill 70,000 women (accounting for 13 percent of maternal deaths), mostly in poor countries like Tanzania where abortion is illegal, according to the World Health Organization. More than two million women a year suffer serious complications. According to Unicef, unsafe abortions cause 4 percent of deaths among pregnant women in Africa, 6 percent in Asia and 12 percent in Latin America and the Caribbean.

Reliable figures on abortion in Tanzania are hard to come by, but the World Health Organization reports that its region, Eastern Africa, has the world's second-highest rate of unsafe abortions (only South America is higher). And Africa as a whole has the highest proportion of teenagers - 25 percent - among women having unsafe abortions.

The 120-bed hospital in Berega depends on solar panels and a generator, which is run for only a few hours a day. Short on staff members, supplies and even water, the hospital puts a lot of its scarce resources into cleaning up after failed abortions.

The medical director, Dr. Paschal Mdoe, 30, said many patients who had had the unsafe abortions were 16 to 20 years old, and four months pregnant. He said there was a steady stream of cases, much as he had seen in hospitals in other parts of the country.

"It's the same everywhere," he said.

On a Friday in January, 6 of 20 patients in the women's ward were recovering from attempted abortions. One, a 25-year-old schoolteacher, lay in bed moaning and writhing. She had been treated at the hospital a week earlier for an incomplete abortion and now was back, bleeding and in severe pain. She was taken to the operating room once again and anesthetized, and Emmanuel Makanza, who had treated her the first time, discovered that he had failed to remove all the membranes formed during the pregnancy. Once again, he scraped the inside of her womb with a curet, a metal instrument. It was a vigorous, bloody procedure. This time, he said, it was complete.

Mr. Makanza is an assistant medical officer, not a fully trained physician. Assistant medical officers have education similar to that of physician assistants in the United States, but with additional training in surgery. They are Tanzania's solution to a severe shortage of doctors, and they perform many basic operations, like Caesareans and appendectomies. The hospital in Berega has two.

Abortions in Berega come in seasonal waves - March and April, August and September - in sync with planting and harvests, when a lot of socializing goes on, Dr. Mdoe said. He said rumor had it that many abortions were done by a man in Gairo, a town west of Berega. In some cases, he said, the abortionist only started the procedure, knowing that doctors would have to finish the job.

Dr. Mdoe said he suspected that some of the other illegal abortionists were hospital workers with delusions of surgical skill.

"They just poke, poke, poke," he said. "And then the woman has to come here." Sometimes the doctors find fragments of sticks left inside the uterus, an invitation to sepsis.

In the past some hospitals threatened to withhold care until a woman identified the abortionist (performing abortions can bring a 14-year prison term), but that practice was abandoned in favor of simply providing postabortal treatment. Still, women do not want to discuss what happened or even admit that they had anything other than a miscarriage, because in theory they can be prosecuted for having abortions. The law calls for seven years in prison for the woman. So doctors generally do not ask questions.

"They are supposed to be arrested," Dr. Mdoe said. "Our work as physicians is just to help and make sure they get healed."

He went on, "We as medical personnel think abortion should be legal so a qualified person can do it and you can have safe abortion." There are no plans in Tanzania to change the law.

The steady stream of cases reflects widespread ignorance about contraception. Young people in the region do not seem to know much or care much about birth control or safe sex, Dr. Mdoe said.

In most countries the rates of abortion, whether legal or illegal - and abortion-related deaths - tend to decrease when the use of birth control increases. But only about a quarter of Tanzanians use contraception. In South Africa, the rate of contraception use is 60 percent, and in Kenya 39 percent. Both have lower rates of maternal mortality than does Tanzania. South Africa also allows abortion on request.

But in other African nations like Sierra Leone and Nigeria, abortion is not available on request, and the figures on contraceptive use are even lower than Tanzania's and maternal mortality is higher. Nonprofit groups are working with the Tanzanian government to provide family planning, but the country is vast, and the widely distributed rural populations makes many people extremely hard to reach.

Geography is not the only obstacle. An assistant medical officer, Telesphory Kaneno, said: "Talking about sexuality and the sex organs is still a taboo in our community. For a woman, if it is known that she is taking contraceptives, there is a fear of being called promiscuous."

In interviews, some young women from the area who had given birth as teenagers said they had not used birth control because they did not know about it or thought it was unsafe: they had heard that condoms were unsanitary and that birth control pills and other hormonal contraceptives could cause cancer.

Mr. Kaneno said the doctors were trying to dispel those taboos and convince women that it was a good thing to be able to choose whether and when to get pregnant.

"It is still a long way to go," he said.

TOON

Another reason not to buy Mitsubishi products

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Mitsubishi freezing fish to sell later as stock numbers plummet toward extinction

Martin Hickman
June 3, 2009 - The Independent/UK

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Japan's sprawling Mitsubishi conglomerate has cornered a 40 per cent share of the world market in bluefin tuna, one of the world's most endangered fish.

Bluefin tuna is being over-fished and its numbers can't be sustained, scientists say. (GETTY IMAGES)A corporation within the £170bn Mitsubishi empire is importing thousands of tonnes of the fish from Europe into Tokyo's premium fish markets, despite stocks plummeting towards extinction in the Mediterranean.

Bluefin tuna frozen at -60C now could be sold in several years' time for astronomical sums if Atlantic bluefin becomes commercially extinct as forecast, a result of the near free-for-all enjoyed by the tuna fleet.

In the forthcoming documentary film The End of the Line, Roberto Mielgo, a former bluefin fisherman who travels the world monitoring catches, claims that Mitsubishi buys and sells 60 per cent of the threatened fish and that it has expanded its freezer capacity to hold extra bluefin.

Mitsubishi acknowledges that it freezes bluefin, but only, it says, to even out peaks and troughs in supply.

"Mitsubishi Corporation handles between 35 per cent and 40 per cent of Atlantic and Mediterranean bluefin tuna imported to Japan," the company told The Independent.

"As we explicitly explained to the makers of the film, the fishing season for bluefin tuna in the Mediterranean is very short, making it necessary to freeze tuna to provide customers with stable supplies throughout the year."

Fish stocks across the world are in retreat because of over-fishing. One study suggests oceans will be stripped clean of all fish by 2048. Bluefin is imminently at risk of commercial extinction. The wildlife charity WWF forecasts that breeding stocks of the fish that migrate from the Atlantic to spawn will be wiped out in the Mediterranean by 2012.

Although the legal bluefin catch is set at 22,000 tonnes, conservationists suspect the actual catch is 60,000 tonnes, four times the maximum that marine scientists recommend. After studying catches and sales, Charles Clover, the environmental journalist behind the film The End of the Line, believes that businesses involved in the ransacking are deep-freezing 20,000 tonnes of bluefin a year for later use.

He hopes his film will galvanise the public about over-fishing in the same way Al Gore's An Inconvenient Truth mobilised opinion against climate change.

British retailers and chefs will not stock bluefin because it is so endangered. However, as disclosed in The Independent last week, the Japanese restaurant Nobu continues to serve it - while advising diners to choose a dish that is less environmentally damaging.

The fisheries body responsible for numbers, the International Commission for the Conservation of Atlantic Tunas (ICCAT), sanctioned a bluefin catch of 22,000 tonnes this year in defiance of its own scientists who advised no more than 8,500-15,000 tonnes.

WWF said the decision was a "disgrace". In fisheries circles, ICCAT is sometimes referred to as the International Conspiracy to Catch All Tuna. Rules forbidding the use of spotter planes to identify tuna shoals are flouted and boats are thought to have connections to organised crime in Italy.

Willie Mackenzie, a Greenpeace fish campaigner, said: "Mitsubishi are best known in the UK for making cars or electrical goods - and for most people it comes as a bit of a shock to find out they are one of the world's biggest traders in the endangered bluefin tuna. Bluefin tuna are as endangered as rhinos or tigers."

The shadow war in Balochistan

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Pepe Escobar
Jun 4, 2009 - Asia Times

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Just when Iran and Pakistan had reached a key Pipelineistan breakthrough, regional violence exploded involving, once again, "the greatest prize" Balochistan (Please see Balochistan is the greatest prize, May 9, 2009, Asia Times Online.)

The key question to ask is, as usual, cui bono?, or "Who profits?" What's behind this new, bloody intersection of Pipelineistan and the former "global war on terror" - a key theme US President Barack Obama would not dare touch in his Cairo address on Thursday to the "Muslim world"?

On May 22 in Tehran, Pakistani President Asif Ali Zardari and Iranian President Mahmud Ahmadinejad finally signed a preliminary agreement, after 14 long years of negotiations, to build the Iran-Pakistan (IP) pipeline, formerly the Iran-Pakistan-India (IPI), or "peace pipeline". (The final deal should, in theory, be sealed in less than two weeks.) The decision brazenly defied Washington's diktat. (Please see Pipelineistan goes Iran-Pak, May 29, 2009, Asia Times Online.)

On May 28 in Zahedan, in Sistan-Balochistan province in Iran, the Pakistan-based, hardcore Sunni, ultra-anti-Shi'ite outfit Jundallah ("Soldiers of God") claimed responsibility for a suicide bombing inside the Amir al-Momenin mosque that killed 25 people and wounded 125.

The timing and the circumstances could not be more suspicious. Tehran simply cannot understand how Islamabad could not contain Jundallah after it has been offered key, on-the-ground intelligence.

Tehran had told the Pakistani ambassador, M B Abbasi, that three Pakistanis - Haji Noti Zehi, Gholam Rasoul Zehi and Zabihollah Naroui - had confessed to smuggling explosives into Iran from Balochistan and passing them over to the suicide bomber. The trio was subsequently hanged in public in Zahedan on May 30.

As for the Iranian ambassador to Pakistan, Mashallah Shakeri, already on March 20 he had publicly accused Islamabad of allowing Balochistan to be a Jundallah base for the destabilization of Iran. Islamabad said "it ain't so", but facts on the ground spelled otherwise. Now it's even more serious, as the future of the IP pipeline is on the line.

How will the Balochis in the Pakistani army react? In Balochistan, the New Great Game in Eurasia is as enigmatic as it gets. There's an enormous discrepancy between some Baloch tribal leaders who live the good life in Karachi (in Sindh) and treat the province as their personal fiefdom, and an extremely destitute population who feels totally alienated by the Punjabi-dominated Pakistani establishment.

The shadowy 'foreign player'

And what does Jundallah really want? Jundallah, also known in Iran as the Rigi group (after its ringleader, Abdul Malik Rigi), is an outfit of Iranian Balochis, who happen to be Sunni and fiercely anti-Shi'ite, who claim to represent their minority's rights in the Iranian southeast province of Sistan-Balochistan.

Their hideout is cross-border, in Pakistani Balochistan. Islamabad has also established they have operating ties with both the ultra-sectarian Lashkar-e-Jhangvi and the Tehreek-e Taliban Pakistan. Tehran directly blames Jundallah for a series of cross-border guerrilla operations that have been going on since 2003, killing mostly Iranian soldiers and border guards.

After the bombing, the diplomatic dance could not but step into overdrive. Islamabad insists it is aligned with Tehran in their regional brand of the war on terror. But Tehran, not beating around the bush, has now explicitly demanded Islamabad to hand over Jundallah supremo Rigi, who is based in Balochistan. Pakistan's Interior Ministry has promised, on the record, to "hunt down" Jundallah.

Although still condemning the Zahedan bombing, the Pakistani Foreign Ministry strangely denies that Iran had sealed off its border with Pakistan. The fact is Tehran did close what they call "the zero point" at the tiny town of Taftan, in the Pakistan-Iran border. Bilateral trade is crucial for the tribal, regional livelihood - after all they are all Baloch "cousins". All the food for the Pakistani Baloch side comes from Iran.

Crucially, Islamabad's tune also has begun to change, in tandem with Tehran, drifting to the "third party" gambit - a foreign player supporting Jundallah's cross-border destabilization campaign, which sabotages any Pakistan-Iran rapprochement and of course the IP.

One does not need to share Tehran's national security worries to identify this foreign player: Washington, which not by accident supports a rival pipeline to IP, the ever-troubled Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, the raison d'etre for the US involvement in Afghanistan. Iranian Foreign Minister Manouchehr Mottaki said as much, "We consider Rigi's network linked with some foreign forces in Afghanistan." And he added Iran had plenty of "evidence".

Both Washington and Islamabad have tended to ignore Jundallah's anti-Iran activities. Well, not really, because under the George W Bush-era Jundallah was co-opted by US intelligence for regime change purposes in Iran. As for the Pakistani angle, will the Pakistani Inter-Services Intelligence (ISI) finally move against Jundallah, as it seems to be moving against Baitullah Mehsud's Taliban? In principle, this should be a no-brainer; according to the Fars News Agency, the chief of the Iranian Armed Forces, General Hassan Firouzabadi, informed Islamabad of Rigi's exact location.

At a Monday seminar in Quetta, the capital of Pakistani Balochistan, organized by the Awami National Party, influential Balochis made clear they would not allow for Taliban and al-Qaeda to thrive in Balochistan, and they urged Pashtuns living in the province to do the same. One has to wonder whether this show of unity against terrorist tactics applies to the Iranian Balochis of Jundallah as well.

It gets much more complicated. Balochistan has been flooded by Pashtun refugees for 30 years (the break-up of the province is now roughly 50/50). Many have been cannon fodder not only for the 1980s jihad in Afghanistan but also for the jihad in Kashmir and of course for the Taliban, in Afghanistan during the 1990s and lately the Pakistani Taliban. Secular Balochis charge that Punjabi-based Islamabad has always encouraged this refugee wave to bolster its own agenda: to undermine secular Baloch nationalism.

So, what is now happening in the Pashtun North-West Frontier Province and the Federally Administered Tribal Areas because of the Pakistani army onslaught - a powerful sense of alienation - has already happened in Balochistan. Islamabad now has to confront not only Baloch nationalism but Pashtun nationalism as well.

All-out shadow war

With or without using Jundallah for its own Iran-destabilizing agenda, Washington's "shadow war" is about to hit Balochistan full speed ahead. It will mirror an already ongoing shadow war - which is the ISI war against Baloch nationalists; as Balochistan is virtually controlled by Islamabad's intelligence agencies, Islamabad cannot but systematically turn Balochis into victims of "targeted assassinations". For Islamabad, ethnic-based separatism is - in echoes of Israel - an "existential threat". Islamabad's reckless actions have only managed to turn it into a self-fulfilling prophecy.

Instead of watching him meet that paragon of democracy, Saudi Arabia's King Abdullah, and cozy up with perennial Egyptian dictator Hosni Mubarak, the "Muslim world" would rather benefit from Obama explaining first-hand what a shadow war in Muslim lands is all about.

By mid-summer, Obama's Afghan surge in troops will be in position. A new, US mega-base in the "desert of death" in Helmand province, in southern Afghanistan, will be operational. The base happens to be a stone's throw from the Iran-Afghan border, and just across the border from Pakistani Balochistan. It's the ideal, strategic base for an extended, tri-border (Iran, Afghanistan, Pakistan) General David Petraeus-coined counter-insurgency splash.

Ultra-shadowy task forces, "Hell from above" drone war, Hellfire missiles, the merciless logic of privatization and "covertization" of war, the Pentagon's "secret operational capabilities" to "locate, target and kill key individuals in extremist groups" - all this cannot but fester in this tri-border area.

Philip Alston of the United Nations Human Rights Council has been an almost isolated voice denouncing US shadow, "targeted assassination" teams working out of Afghan bases in Kandahar and Nangarhar, and allied with wily, local militias. The victims are mostly Afghan civilians. In Balochistan, the available "local militia" will always be Jundallah. The base will be in the Afghan "desert of death". In the absence of Taliban or al-Qaeda, victims of "decapitation" are plenty of Iranians across the border.

How better to apply Petraeus' tactics than to expand these teams into destabilizing Iran and preventing Iran and Pakistan from closer integration via a key Pipelineistan node - an integration that also benefits China?

That is achievable with a Balochistan mired in chaos. From the Pentagon's point of view, China profiting from the Baloch port of Gwadar to be supplied with Iranian gas is anathema. Islamabad may not be allowed by Washington to take out Jundallah after all.

Shadowplay rules.

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Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Red Zone Blues: a snapshot of Baghdad during the surge. 

A Rough Drive With the Hummer

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Andrew Peaple
June 3, 2009 - The Wall Street Journal

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The idea of an obscure Chinese heavy equipment maker buying up Hummer is entertainingly left field for most onlookers.

Chinese government officials will likely be tearing their hair out.

For sure, Beijing is keen for Chinese companies to expand overseas. But they're also hoping for some common sense.

Vice Premier Wang Qishan recently railed against Chinese acquisitions made by managements with little overseas experience, in markets where they don't understand labor relations or even the language.

Yet here is Sichuan Tengzhong Heavy Industrial Machinery – a company whose key overseas markets are Vietnam, Pakistan, and Bangladesh, and whose management speaks little English – venturing to turn around a struggling American icon.

Having a Chinese company bid for the mother of all gas-guzzling car manufacturers isn't exactly a snug fit with Beijing's efforts to promote a more environmentally friendly image for the country.

Those familiar with the so-far unheralded Sichuan Tengzhong point to its decent track record in manufacturing a variety of industrial products, having steadily accumulated businesses in China.

The bid for Hummer, it's said, has been carefully considered, with due attention to cultural differences: The Chinese company will leave Hummer management in place, treating the deal almost like a private equity investment.

That's as it may be. But the track record of cross-border auto sector deals, especially in niche markets like the Hummer, isn't great.

Tata Motor's travails with Land Rover and Jaguar spring to mind as recent less-than-favorable examples. Hummer's market even in the U.S. is fading fast, with sales halving last year.

Sichuan Tengzhong's bet is that the market can recover: the Hummer may seem antediluvian these days, but there may be enough takers when the economy recovers.

In financial terms, this is a small deal, even at the upper end of the estimated $500 million price tag.

But it's a deal rich with symbolism. That won't have escaped the Chinese leadership – the pressure is truly on Sichuan Tengzhong to make this deal a success.

Dollar's fate written in history

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John Lee
Jun 4, 2009 - Asia Times
 
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Debt-based monetary systems are inherently unstable. Money is created out of thin air by the banks and lent to government, consumers and businesses. In order to service and repay those debts, the borrowers take on more debts. Asset prices are inflated, and the vicious cycle continues until the debtors are unable to borrow or the banks are unwilling to lend.

At that point the system snaps, everything is sold off, and we have a financial crisis at hand. Here, we examine what happens to equity and currency markets in the aftermath of financial crisis and deduce what will be the likely outcome for the United States as it emerges from the present crisis.

1998: Russia

Declining productivity, an artificially high fixed exchange rate between the rouble and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to Russia's financial meltdown in 1998. The estimated US$5.5 billion economic cost of the first war in Chechnya was also a cause.

Prior to the culmination of the economic crisis, the government-issued GKO bonds in a policy that has been described as similar to a Ponzi scheme, with the interest on matured obligations being paid off using the proceeds of newly issued obligations.

Two external shocks, the Asian financial crisis that had begun in 1997 and the following declines in demand for (and thus price of) crude oil and nonferrous metals, had a negative impact on Russian foreign exchange reserves. A political crisis came to a head in March when Russian president Boris Yeltsin dismissed prime minister Viktor Chernomyrdin and his entire cabinet in March.

The Asian crisis and related political events rattled investor confidence, caused foreign investors to sell off Russian stocks, bonds, and get out of roubles.

The amount of money involved in GKO bonds, at some $150 billion, was not a cause of concern for a $1 trillion economy. But with more than 30% of GKO bonds owned by foreigners, the foreign selloff caused havoc in equities, bonds and the rouble. The Russian broad equity index crashed by more than 90% from late 1997 to October 1998, and the rouble went from five roubles per US dollar to 30 per dollar in June 1999.

After the equity panic bottom was pressed in October 1998, the Russian equity index, measured in roubles, rebounded strongly in part thanks to the depreciating national currency. However, measured in US dollars, Russian stocks didn't make a full recovery until some five years later.

2001: Argentina

In 1998, Argentina officially entered a recession that lasted for three years and ended in a collapse as fears of the devaluation of the peso led to bank runs. This led to heightened protests and violence affecting many people and companies, causing several deaths.

In 2001, Argentina had $100 billion of national debt, which was about 40% of its gross domestic product. While the amount was containable relative to its GDP, the Argentineans made a mistake of denominating its debt in US dollars. With a shrinking current account surplus, the country wasn't able to raise dollars to pay debt principal and interest in 2001 and eventually repudiated on the foreign debts. The fixed exchange rate was removed and the peso was quickly devalued. The exchange rate was then left to float, causing further devaluation. The peso went from parity with the US dollar to four per dollar in early 2002.

The Argentine equity index plummeted 60% in 2001, and although it recovered fully in 2002 in nominal terms, it wasn't until 2004 that stocks come back to their pre-crisis level in US dollar terms.

Today: USA

The US has just experienced the biggest debt blowup known to man. Mortgages debts worth more than $1 trillion had to be bailed out. Lehman Brothers, Merrill Lynch, Bear Stearns, Countrywide, Fannie Mae and Freddie Mac have all become history. Even the iconic Citibank was brought to its knees and a stock price of $1 before the government bailout. The S&P 500 index halved in 12 months.

The US is privileged to have its dollars serving as the world's reserve currency. America's debt is denominated in dollars, which can be printed at will by the Federal Reserve - and print is what the Fed did, and continues to do, creating more than $1.5 trillion to bail out various groups.

The S&P 500 responded positively to monetary easing, rising 40% since March in nominal terms. It shouldn't be surprising to see the index recover to its pre-crisis level. Equities have to rise as in the cases of Russia and Argentina, when currencies had been massively devalued.

In real terms, however, when S&P 500 is measured in gold terms, it will likely take many years before the index recovers.

Where does the dollar go from here? When foreign investors took flight from Russian rubles and Argentine pesos, the dollar was the beneficiary. When global investors take flight from the dollar, which currency benefits?

Gold is the ultimate antithesis to the dollar. Gold is liquid, universally recognized and limited in quantity. Just like Russians and Argentines trying to anchor their currencies to the dollar, the US government devised various ways to slow down the rise of gold prices to maintain the dollar's soundness. However the massive money printing by the Fed and fast-eroding confidence in the dollar by international investors might just be the key to drive gold past the ellusive $1,000 per ounce level and not look back.

As we saw in the past crises in Russia and Argentina, and also in Thailand and Brazil, equity markets eventually do return to former levels while the devalued currency never regains its former strength. The US case will be no different.

A further rebound by the equity market in nominal terms can be seen albeit with extreme volatility, and we will likely witness a four-digit gold price this year. As the Chinese saying goes, crisis is spelled "danger" and "opportunity". There is still time to diversify out of dollars before the world recognizes the currency's permanent debasement and demotion of status.

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John Lee is the founder and principal of Mau Capital Management and the portfolio manager of a mining equity hedge fund. He is a CFA charter holder and has degrees in economics and engineering from Rice University. Lee has a keen interest in the history of money and economics, and has previously studied under James Turk, a renowned authority on the gold market.

US core no longer the magnet

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Doug Noland
Jun 2, 2009 - Asia Times

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Last week provided ample confirmation for the global reflation thesis. The dollar index dropped another 0.9%. Gold surged US$22 to $979. Crude oil jumped $4.67 to a six-month high, posting the largest one-month percentage gain since 1999 (according to Bloomberg). The Goldman Sachs Commodities index rallied 5.5% to an almost seven-month high (up 27% year-to-date). Emerging markets remain on fire. And the Baltic Dry Index rose again on Friday, increasing its streak of consecutive gains to 19.

Leading the "BRIC" sweepstakes, Russia's RTS equities index jumped 7.3% last week, while India's Sensex rose 5.3%. Russian stocks are now up 72% year-to-date, followed by India's 52%, China's 45%, and Brazil's 42%. Elsewhere, stocks in Taiwan are up 50%, South Korea 24%, Argentina 47%, and Hungary 22%. The "commodity" currencies led the charge again last week. The South African rand gained 4.1%, the New Zealand dollar 3.3%, the Brazilian real 3.0%, the Australian dollar 2.4%, and the Canadian dollar 2.7%.

It was quite a week in US interest rate markets. Ten-year Treasury yields jumped 29 basis points (bps) during the shortened week's first two trading sessions (to 3.74%), before backing off to end the week up only 2 bps to 3.47%. The mortgage marketplace turned rather tumultuous, with benchmark Fannie Mae mortgage-backed security (MBS) yields spiking 55 bps from last Friday's close before ending the week 19 bps higher at 4.33%.

Some interest-rate hedging markets seemed in disarray, with the dollar swaps market demonstrating price discontinuity. After closing last week at 14.4 bps, the 10-year dollar swap spread traded as high as 38.25 before ending the week at 19.50.

Importantly, at least for the week, mortgage-related market tumult didn't broaden to other risk markets. Corporate credit spreads were mostly narrower on the week, even as the company debt issuance boom ran unabated. The junk-bond market enjoyed another week of strong fund inflows more than matched by huge issuance.

It is also worth noting the resilience of the "emerging" debt markets. Brazilian benchmark dollar bond yields were down 14 bps to 5.86%. Mexican dollar bond yields fell 14 bps to 5.74%. Brazil's credit default swap (CDS) prices declined to the lowest level since early October (197 bps, down from the October high of 600 bps). It is no longer the case that when the Treasury market catches a cold others get really sick.

At this point, the markets' sanguine attitude toward US dollar and Treasury/MBS weakness is understandable. From a global perspective, a weaker dollar bolsters the inflationary bias that had prior to the credit meltdown been driving robust economic performance throughout the energy and commodities-based economies. Dollar devaluation also works to reinforce already heady financial flows to "emerging" markets and non-dollar assets more generally. There are facets of inflation that seductively salve recovery.

The dramatic loosening of financial conditions globally is supporting an improvement in economic conditions. The optimists are looking for Asia and the developing world to lead a global recovery, and a sinking dollar on a short-term basis would seem to support such a scenario. Our weak currency also empowers the global government finance bubble. Amazingly, most countries today have unprecedented flexibility to issue debt without fear of negative market reaction or a run against their currencies.

I again want to emphasize the dramatic change in circumstances that is increasingly in view throughout global markets and economies. During the 1990s - and stretching through the "King Dollar" period earlier this decade - there was an overarching inflationary bias that worked to direct flows to the "core" (the US credit system and securities markets). Whether it was a crisis that initially erupted in Mexico, Southeast Asia, Russia, Argentine or Brazil, the immediate market response was an abrupt reversal of financial flows from the developing countries to US dollar securities. While there was an ongoing acceleration in speculative flows meandering about the globe in search of big returns, the first sign of trouble would incite a panic straight to the dollar.

The "core" absolutely dominated the system, providing our policymakers (especially the US Federal Reserve) extraordinary latitude. The periphery-to-core bias fostered financial crises, along with general periphery financial and economic instability. This dynamic worked to keep global inflationary pressures in check. Or, better said, the nature of the inflationary flow of finance kept inflation pressures directed to US dollar securities markets - as opposed to energy, commodities and more traditional inflation.

The global financial and economic backdrop has changed profoundly. Today, there exists a powerful inflationary bias working to direct flows away from the core out to the periphery. This dynamic helps to explain the dramatic change in the cost and availability of finance for the developed world over the past several years - the virtually unlimited cheap finance that funded historic booms in China and Asia.

Granted, this flow was abruptly interrupted by last year's global credit crisis. It is, however, my view that the dynamic of powerful core-to-periphery flows has resumed. Moreover, it is the nature of this type of dynamic that if such a trend recovers it will likely resume stronger-than-ever (think tech stock reflation post the Long Term Capital Management collapse or mortgages reflation post the tech bubble). This analysis is supported by the periphery's recent dramatic economic and market outperformance relative to the core.

So, is this bullish or bearish? Well, I believe the core-to-periphery dynamic is supportive of a more rapid than expected global economic recovery. I definitely expect global inflation to surprise on the upside. Adherents to the global deflationary spiral thesis may be left wondering what the heck happened. The backdrop seems to be set for surprising revival in energy and commodities markets. And I would not be surprised if the global equities rally has some legs.

Yet I view the core-to-periphery dynamic as profoundly bearish for the US. At its core, this historic redirection of global flows and inflationary pressures is the consequence of a breakdown in the dollar standard. Failed policies, a resulting deeply impaired economic structure, and massive ongoing devaluation have ended the dollar's reign as the globe's premier reserve currency and perceived stable store of value. There is today no sound currency to replace the dollar, so the global financial system operates rudderless and with great uncertainties.

It is more certain, however, that the great benefits commanded to our economy and markets over the decades from governing the world's reserve currency are drawing to an end. Our policymakers still believe they can inflate credit and manipulate interest rates - and not have to pay a price for it. But the new global reality may be that currency markets will protest against massive US fiscal deficits and activist monetary policy, while global markets come to dictate US market yields. Over the past two weeks, we have seen the dollar and US Treasuries/MBS come under significant pressure. Is this the beginning of global markets disciplining Washington?

A robust core-to-periphery dynamic and the re-emergence of dollar vulnerability are a potent combination. US markets to this point remain sanguine with the prospect of an expanding Federal Reserve balance sheet rectifying any spike in interest rates. But currency markets are no doubt increasingly fixated on our propensity to monetize current and prospective stimulus.

At some point, increasingly unwieldy flows out of our currency may force the Fed's hand. The scenario where the Fed is forced to choose between loose monetary policy and currency crisis sits out there as a potential big negative surprise for US markets.