Crisis | Green World Investor

Global Warming of 2 Degrees to Halve India’s Wheat Production to 40 Million Tons

1 Feb, 2012

In these days of economic crises it has become unsexy to talk about Global Warming and Climate Change which pose a much greater threat to mankind. The Western countries have turned apathetic towards climate change with most like Canada, USA and UK showing shocking attitude towards Global Warming . The reason is that rich countries can throw resources at ameliorating the affects of climate change . The poor countries have little in terms of resources to either slowdown climate change or change the attitude of the richer countries. South Asia and Africa two of the poorest regions in the world will face the worst of the global warming affects. A new study has indicated that India’s wheat yield could be halved to 40 million tons a year from the current 80 million tons due to rising temperature. The reason is that wheat yields will come down as temperature goes up by 2 degrees centigrade or more.

Extreme heat can accelerate wheat aging, an effect that reduces crop yields. The overall decline could be as much as 50 per cent with two degree increase in temperature and is way above than what has been anticipated in existing crop forecasting models.The new research implies that climate warming presents even greater challenges to wheat production in Punjab, Haryana, Uttar Pradesh and Bihar than current models predict.
The team comprising scientists from Stanford University and International Maize and Wheat Improvement Centre in Mexico studied the wheat growing regions of Indo-Gangetic plains with satellite data for nine years to pick up the signs of early maturity in wheat and compare it against rising temperature.

Climate Change has started happening already but like IPCC it is being ridiculed because there is no proof. Climate skeptics can use the complexity of the science of global warming as a weapon to disrepute the whole theory. But there is too much overwhelming series of facts like the hottest years in centuriers, ice sheets melting , ferocious storms to just say that we can’t say for sure.

Recently the weather conditions have become extreme in many parts of Asia and Europe.While the global temperatures this year are said to be the highest since records were kept,devastating climate conditions have affected different parts of the world.It reads straight out of an Global Warming Disaster 101.Global Wheat and Rice Prices have increaseddramatically as a Record Drought Affects Russia . China and Pakistan are seeing devastating floods which have displaced millions besides endangering the fragile Pakistani Economy.While the anti Climate Changers will say that it has nothing to do with human induced carbon emissions,there is still nothing to prove that it is not so.Doomsday scenarios projected by the end of the century if global temperatures increase by more than 2 Degrees Centigrade are playing out right now.

Rising Food Prices in India and elsewhere are already causing havoc with Food Riots, Hunger and Malnutrition. Hundreds of Millions in India go Hungry everyday without the Global Warming Affect. What would happen when Food Production falls in Halve is just too painful to analyze.

The recent weather catastrophe in different parts of the world has pushed up the food prices.The Russian Wheat Export Ban imposed earlier had exacerbated the situation with news coming of the ban being extended into 2011.The exponential increase in wheat price which had moderated earlier is starting to soar again.The rising food price has led to riots in the Maputo town in Mozambique where food prices were increased by25%.Food insecurity is raging in the poorest parts of the world amongst populations which are most vulnerable to slight increase in food prices.Wheat Prices have increased 74% in the last 3-4 months and other grain prices have moved up in sympathy as well.Food inflation is rearing its ugly head with India reporting double digit inflation in Food Prices.China has also sown increased wheat and port prices due to incessant flooding.Major Food importers like Bangladesh are increasing their imports of Rice as Wheat is expected to be in short supply.Animal Feedstock is being substituted with corn based products from wheat based products.This has led to a general rise in prices of all grains leading to worldwide distress.Major food producing and consuming countries like China and India are clamping down on exports of food items as it is every country on their own.Globalization of Agriculture has not proved to be more of a bane than boon as speculation in agri futures has led to a faster rise in food prices.The future of Food Security looks bleak with increasing population and affluence marching ahead of the food growth.

Greece Referendum on European Bailout – 5 Points you Want to Know

6 Jul, 2011

World Economy and Markets

Greece Referendum is set to become the hottest media topic related to the European Debt Crisis in the coming months.In a totally surprising move Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote on 31st October just a week after the European leaders had agreed on a package to .Papandreou’s personal and government popularity have plunged amid fresh austerity measures that sparked a wave of social unrest.The PM is calling this vote probably to bolster his government as it loses support of the masses.Mr Papandreou, whose ruling Socialist party has suffered several defections as it pushes waves of austerity measures through parliament while protesters rally outside, said he needed wider political backing for the fiscal measures and structural reforms demanded by international lenders.

a) Recapitalize the Eurozone Banks

b) Agreed on a €100bn loan to Athens and Offered a 50% haircut on Greek Debt

c) Promised to increased the size of EFSF to almsot 1 Trilion Euros

This new Referednum promises to set the cat amongst the piegons once again and set off a new wave of crisis.

Here are some points that you need to keep in mind with this referendum

1) The confidence vote will conclude late on Nov. 4, while the referendum will likely be held after the details of the European accord are tied up.The Referendum is supposed to occur early next year.It will be only Greece’s second in almost 40 years,the first being to oust the Monarchy.Referendum Legality is also being questioned since it can be only held for matters of national importance and not for Economic Matters.

2) The chances of the referendum passing are low as Most Greeks oppose last week’s European deal to address the country’s debt crisis.According to the poll, 58.9% of Greeks judge the new European deal as “negative” or “probably negative” for Greece, while nearly two-thirds said they felt unease, fear or rage at the decisions reached by European leaders.54.2% of Greeks thought a national referendum should be called to approve the new aid deal, compared with 40% who said Parliament should decide.

3) Total Default on Greek Bonds could occur if the Bailout Referendum Occures resulting in a Lehman style Event though probability of that happening is low.What is certain is that till the Referendum happens the Global Financial Markets will be plunged in Volatility

4) The popularity of all major political parties is low with 14-22% approval ratings.Nobody knows whether such unpopular politicians can convince the public of anything let alone a complex referendum which will be decided by emotional appeals rather than a logical cost benefit analysis

5) European Leaders were blindsided by this sudden decision of the Greek government and many consider it a betrayal after going through such painstaking negotiations over the past few months to hammer out a deal.Some consider it as Blackmail by Greece to the whole European Union.Sarkozy is “dismayed” by the Greek plan, Le Monde newspaper reported, citing unnamed people close to Sarkozy.

Bailout, Balance Sheet, Bank, CDS, Crisis, Currency, Debt, EU, Euro, Fed, Fiscal Deficit, Government, Greece, Greece Pension Funds, Greek CDS, Greek Debt Deal, Loan Guarantee,Quantative Easing, Real Estate, Sovereign Debt, Stock Market, Stress Test

Greek Debt Deal – Bondholders take 50% Loss- Who Wins and Loses

5 Jul, 2011

Europe,Italy,Spain

According to reports coming from Europe where the summit of major European leaders took place to resolve the growing debt crisis,a deal has been reached on Greek debt.The Euro 350 billion debt which dwarfs the size of the negatively growing Greek economy has been a major source of instability in the last 2 years.The private holders of the Greek government bonds have agreed to take a 50% writeoff on their holdings.This means that if they hold Euro 100 of bonds they have become Euro 50 now as the rest has been written off as bad debt.Not that it was not apparent as Greek CDS and Greek bonds were touching all times lows in the secondary market.In fact the only buyers of Greece bonds were the European Central Bank and the Greek banks.The capital markets had been going up in the last month in the hope of some sort of resolution.The deal does not look like a win win as there will be some big losers in this deal (though they were already losing for some time).Nicolas Sarkozy announced the deal which would be voluntary in nature so that the CDS would not be invoked.Here are the winners and losers from this deal

Losers

1) Greek CDS Holders – They would be one of the biggest losing part as ISDA will not invoke that this is a credit event in which the Greek bonds have defaulted despite the 50% haircut

2) Greek Citizens – They would have been better off if a more sustainable path had been paved since the estimates still call for Greece to have 120% debt to GDP ratio by 2020.This means that they will have to live in a generation of austerity and poverty

3) Greece Pension Funds and French Banks – The French Banks like BNP Paribas,Credit Agricole have the biggest holdings of the debt.So also Pension Funds in Greece and other places which will be suddenly seeing a big hole in their assets column

Winners

1) Euro – The currency has managed to survive this phase of the crisis and has managed to surge at least till now.

2) Italy,Spain and Portugal – The contagion to the bonds of these countries will be contained since Greece has not done a messy default.The yeilds on the bonds of these countries might go down at least temporarily

Greek bondholders to take 50% haircut – Marketwatch

French President Nicolas Sarkozy said at a press conference in Brussels that the 50% haircut will be a voluntary agreement.An involuntary writedown could have potentially constituted a “credit event” that would have required the payout on billions of euros in credit default swaps, instruments used to insure debt against non-payment.

Thursday’s deal means that Greece’s debt burden will fall by around €100 billion ($140 billion). Media reports earlier this week had put a possible haircut on Greek government bonds at between 40% and 60%.Sarkozy also announced that the European Financial Stability Facility will see an increase in firepower by four- or five-fold.

An expanded bailout fund is seen as crucial in ensuring that the debt crisis doesn’t engulf Spain and Italy.

Another Nail in the Coffin of Mankind’s Fight for Climate Change,USA goes Anti-Green – Congress blocks EPA Carbon Rules

8 Apr, 2011

Climate Change,USA

USA has been one of the worst countries in the world in regards to climate change and global warming issues.While countries have pledged to cut down their emissions from 1990 under the Kyoto Protocol,USA has not only increased its GHG Emissions by 80% from 1990 but also failed to announce any target for 2020.President Obama except for some Loan Guarantees and Funding has miserably failed to push for a climate change and energy legislation.Now with the Republicans leading the House of Representatives,there is no hope for any Global Warming from the second largest emitter of Carbon Dioxide.The Environmental Protection Agency which had been formulating rules to regulate the emission of Carbon Gases from utilities and oil refineries has been now stopped in the blocks by the US Congress.

The Anglo Saxon countries have been notorious for their lack of responsibility in regards to Climate Change.Canada,Australia,USA and UK have been the worst in this regard.Russia too has been extremely bad in the Climate Change fight but its not a surprise given that most of the elite there depend on the Fossil Fuel Industry for their power and money.The powerful oil and gas industry has managed to scuttle and block climate change fight globally.The Cancun and Copenhagen Climate Change Meets were abject failures resulting in huge pessimism amongst Green Activists.China and India are trying to do their bit but they are still trying to move millions from poverty to a respectable existence so their resources are limited.Rich countries like Saudi Arabia are the worst offenders blocking island nations request for a climate change study instead asking for money to replace their trillion dollar oil revenues.Climate Change has already arrived though it can’t be proved given the complexity of Climate Change.This US Congress Law is another nail in the coffin of Mankind’s Fight for Climate Change

House passes bill to stop EPA climate program

The House of Representatives passed legislation on Thursday that would stop the Environmental Protection Agency from regulating emissions of gases blamed for warming the planet, a day after the Senate rejected similar legislation.The vote in the Republican-controlled chamber was largely symbolic since the Senate voted down four amendments on Wednesday that would stop or delay implementation of the EPA rules, which began rolling out in January.

The White House has said President Barack Obama would veto any legislation that would permanently stop the EPA’s climate regulation.Analysts said the debate could heat up again when the EPA proposes rules that would limit emissions from power plants in July and on oil refineries by December.

India Criticizes Renminbi Undervaluation,Calls for Diversifying away from Chinese Imports

2 Apr, 2011

Brazil,China,USA

India has become the latest country to join in the bashing of Renminbi undervaluation saying it leads to a massive advantage for Chinese exporters.A research paper from India’s Central Bank says that its artificially boosts China giving it a competitive advantage over Indian exports.Note Brazil another one of the famed BRIC quartet has too been complaining about Chinese imports swamping its industry.Note Brazil has seen massive currency appreciation in recent years due to a combination of high interest rates and strong economic fundamentals.

India is also growing concerned about the growing trade deficit with China which totals almost $19 billion.Note it is the same like Brazil where machinery and low tech non commodity imports are killing their domestic industries.The paper calls that India should reduce dependence on Chinese imports which has gone up to 10.7 per cent during 2009-10 from 7.3 per cent five years ago.To avoid the implications in terms of imports, there is a strong need to diversify imports of these items.

The pressure on the Chinese to appreciate the yuan keeps growing by the day.Earlier strong US pressure had made China appreciate its currency by a few percentage points as the US Congress threatened to bring legislation against China labelling it as a currency manipulator.

India being hurt by undervalued yuan: RBI

China’s policy to keep its currency, the renminbi or yuan , artificially undervalued gives it a huge economic advantage and impacts India’s trade, says a research paper released by the Reserve Bank.

In the paper, ‘The Implications of Renminbi Revaluation on India’s Trade’, S Arunachalaramanan and Ramesh Golait of the RBI have said that an artificially undervalued currency gives China a distinct advantage in the export market.

“By keeping renminbi (RMB) undervalued against the US dollar (USD) and depreciating it in line with the USD in the international market without taking into account the economic fundamentals of China, it invariably and distinctly provides competitive advantage over its trade competitors and trade partners including India,” the paper said.

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Deflating Developed Countries Fueling Dangerous Inflation in Developing Nations

18 Sep, 2010

Europe,Japan,USA

USA,Europe and Japan are in either in the midst of Deflation or on the brink of this scary scenario.Japan has been battling insidious Deflation for the last 20 years without much success.The problems associated with Deflation are low consumption,anemic growth, debtor problems etc.USA and Europe which were both victims of the Global Financial Crisis bought on by huge Debt Loads are now finding themselves fighting Deflation.Both have done prodigious quantitative easing in 2008 and 2009 but still find themselves no better off.This credit induced recession is more insidious and dangerous than your normal business cycle recession.With an imminent threat of a double dip recession,there is talk of another round of quantitative easing.This has huge implication on Developing Nations such as Indonesia,Brazil,India,China and others.

How Quantative Easing is affecting Developing Countries

In our Financial linked world where Capital is Globalized while Regulation is not,Hot Money Flows are fueling inflation and asset based bubbles in Developing Countries.Some of the Emerging Markets are either close to or have surpassed the 2008 all time highs.Inflation is also hitting dangerous levels in some countries like Argentina,India and others.The depreciating dollar brought upon the the US Federal Reserve Printing of money has made it necessary that the Central Banks purchase Dollars.This has been done not only by Brazil and Singapore but also by Japan.With more Dollar Printing,these Purchases will increase the Liquidity in the Developing Countries.This is a sure shot recipe for high inflation which will be difficult to control.India has already raised Interest Rates 5 times this year in order to rein in the pernicious effects of high inflation on its largely poor population.

The Developed Nations have embarked on the greatest experimentation in Financial History.The outcome of how this will exactly end is not known.One thing is for sure is that the denouement won’t be good and would lead to additional crises in the next few years.The interim period will be marked by asset bubbles in emerging markets,high volatility and rising commodity prices.