By: Our Correspondent

rising numbers of American workers filing jobless claims, those
staying on benefit rolls is now the most since February of 1983. The
latest figures from the OECD show that United States unemployment was
6.5 percent, with the rest of the world following along ominously. US
employers have now shed jobs for the tenth month running.

All of
this has to do with the worsening global Economic Time™. The
excess demand for money is intensifying an excess supply of goods –
so why hire? More importantly, why not fire? Behind this is the fact
that America’s earnings outlook remains bleak: S&P
500-member companies have reported third-quarter contractions of over
9 percent and analysts guess that for the full year, earnings will
contract by 8 percent.

Based on
what the Economic Clock™ is suggesting, “18” is
more likely than “8” perent earnings contraction: after
all, when you have an excess supply of goods, margins as well as
turnover wilt, so what else can drive profits?

At least
President-Elect Barack Obama appears to have a fantastically deep
pool of experienced talent to draw upon (e.g. former Treasury
Secretary Lawrence Summers, former Fed chairman Paul Volcker, and
Timothy Geithner, the chairman of the New York Reserve Bank. to name
but a few, as well as leaving the very astute and erudite Dr. Ben
Bernanke at the US Federal Reserve.

Nobody can
change cycles. Winter is a very useful cycle in that in its duration,
the bad stufaf is cleaned out and paves the way for spring. This is
how we view the current cycle, the Economic Time™ (see
in our jargon. It is characterized by an excess demand for money
(banks won’t lend), and thus an excess supply of goods

All that
President Obama, when he takes office January 20, can do is to
alleviate/lessen/anaesthetize the pain: he cannot skip this part of
the cycle. It is the commercial banks — NOT the Central Banks –
that are creating an excess demand for money. They are regulating
themselves and thus are choosing not to lend. That choice is based on
profitability, and will take a long time to undergo transformation.
Meanwhile, when the world’s central banks change policy they
are driven by policy – NOT by profits – and thus they can
choose to alter policy at one board meeting.

I am
afraid that Obama can do little to stop cost-push stagflation, which
we identified “in the coming” back in the spring of 2006.
He is on more dangerous ground when he made comments about China
being a currency manipulator. How will that affect relations?

This is
where things get truly dangerous: he must manage expectations.My
latest and very short book, Trade Myths: Globalization and the trade
balance fallacy (see,
is designed to counter such a myth, namely that only exchange rates
drive trade balances.

Indeed, if
this were the case, why do Germany and Japan – with
ever-strengthening currencies – have growing trade surpluses,
while America, with an ever-weakening currency – have a
swelling trade deficit? Thus, his argument is misplaced and

He would
be wiser to focus on praising the successes of America’s
multinationals operating abroad: they not only are giving America a
global trade surplus of nearly US$3 trillion. If Obama uses this
cheap rhetoric that China has to stop “manipulating” her
currency, then there is very little to prevent Chinese officials, at
a grass roots level, from impeding the operations of those American
multinationals operating so successfully abroad.

America has fanned China’s ire by adamantly continuing to sell
arms to Taiwan – just as she is angering Russia with the
construction of her missile defence shield in the Czech Republic. Of
course, China has picked precisely this moment to send her Taiwan
envoy to Taipei to deepen ties between both places, precisely where
the US is in policy limbo.

A More
Protectionist America

This is
precisely what happens, and certainly not only in America, when the
Economic Time worsens: instead of looking at their own domestic
shortcomings such as failed education  and tax policies,
politicians anywhere chase the cheap vote by blaming the “bad”
foreigner. In my book, Trade Myths, I counter this by including the
very successful roles of multinationals’ overseas operations –
and show that America has a global trade surplus while China has a
global trade deficit.

Obama has
to manage expectations, and I am afraid that despite all of his “it’s
time for a change” hype, this issue of trade, too, will be
painted with lipstick – but remain a pig.

All the
interest rate cuts: Are they helping, needed, are we on the right
track in tackling the credit crunch? These are like ice water drunk
after a night of heavy drinking: they only alleviate the pain, but
they cannot cure anything. The reason is that greedy banks got so
carried away that now, they have swung from greed to fear.

The good
news is that they are regulating themselves; the bad news is that
this creates an excess demand for money, which in turn intensifies an
excess supply of goods: The chickens of irresponsibility have come
home to roost. Stagflation, driving by cost-push inflation, is on the

rates only alleviate the pain, but they are not a sufficient reason
for banks to resume lending. Faced with lower turnover by lending
less, they now are supporting margins by not passing lower interest
rates on to the consumer. Indeed, crazily enough in Hong Kong, banks
are actually raising their mortgage rates, even though their funding
costs are falling.

chief regional economist for leading London-based investment banks in
Hong Kong, Enzio von Pfeil is now an independent investment adviser
and a regular contributor to Bloomberg Television UK, Bloomberg
Television Deutschland, and to CNBC Asia. This is adapted from his