(Partial) response to Michael's plea

[bantam@xxxxxxxxxxxxxxxx]

G'day Pen-pals,

>The brutality in Palestine is unconscionable.  When is the last time we

heard about East Timor?  Or has it fallen off the map?  Even Colombia no

longer merits a mention.<

It is nobody's interests - nobody who matters, that is - to pursue the
East Timor story too much.  One Oz journo (Lindsay Murdoch of the Sydney
Morning Herald / Age stable - Oz's best papers) who started digging into
resdual issues has got himself deported.  Nobody reported what happened
when Indonesia closed the West Timor refugee camps, nobody has had
anything to say about the fact that many of the men who disappeared at
the time of the outrages have never been seen again (I fear forced
resettlement is a more likelihood for missing women and kids than it is
for missing men ... ), and nobody's saying anything about what ever
happened in the East Timor enclave in northern West Timor.  Howard wants
to do business with Sukarnoputri on the matter of stopping the flow of
boat-people to Australia from corrupt army-and police-run embarkation
points, as what remains of his government's battered credibility at home
depends on his inconscionable policies regarding desperate foreigners
being vindicated.  So, yeah,  East Timor's off the map.  We need but
guess at what's going on in regional Colombia, and we won't be far
wrong, alas ...

>I think what is missing is an overall narrative to tie things together
so
that each crisis does not appear as an unrelated episode -- so that the
activists in various social justice movement can draw upon the strength
of
each other.<

The following doesn't cover all bases, but it's a concise and timely
reminder of where we're at on some crucial criteria, I think.  It ain't
quite the end of the world, but ya can see it from here ...


"Apr 05, 2002
Global: More Global Angst
Stephen Roach (Morgan Stanley New York)


                                The global economy is caught in the
crossfire of three powerful forces - heightened geopolitical
instability,
mounting trade frictions, and the likelihood of a long overdue
resolution
of America's current-account imbalance. Any one of these forces would be

enough to destabilize the global economy and/or world financial markets.

But taken together, the potentially lethal interplay between them could
well turn any macro view of the world inside out.

                                The geopolitical wild card is the most
ominous of these forces, to say the least. With the Israeli-Palestinian
conflict lurching out of control, instability in the Middle East is the
most destabilizing threat of all. But that follows in the aftermath of
the
war in Afghanistan and the growing likelihood that Iraq was shaping up
as
the next front in the ongoing US-led campaign against global terrorism.
One
way or another, all this spells deeper involvement of the United States
in
an escalating conflict between the Islamic world and the West. And the
financial markets are sending a clear signal about the most obvious
economic implication of this conflict -- higher oil prices. Time and
again
over the past 30 years, the global business cycle has been a captive of
geopolitically induced fluctuations in the oil price. This may well be
one
of those times.

                                Heightened trade frictions are another
sinister force looming over the global economy. Washington's politically

inspired move to protect an uncompetitive domestic steel industry is but

the latest and most worrisome tilt against trade liberalization.
Unfortunately, it's not the only one. From bananas and genetically
modified
foods to export tax subsidies and lumber, trade disputes are now coming
at
a fast and furious pace. The global village is not exactly turning out
to
be the shining example of tranquility envisioned by the pristine models
of
globalization. As I see it, that's an unfortunate by-product of a rare
synchronous recession in the global economy -- one that brings out the
worst behavior in nations that suddenly find themselves competing for
smaller slices of a shrinking pie. With free trade giving way to trade
frictions, two macro results are unavoidable -- a slower expansion of
global trade and a potential upward adjustment to tradable goods prices.

                                Finally, there's the seemingly
unavoidable
US current-account correction to contend with. By our estimates,
America's
external shortfall is likely to hit 4.6% of GDP in 2002 and expand
further
to around 6% in 2003. Nor would it automatically stop there in the years

beyond. In my view, that seals the fate of the coming reversal in the
current-account deficit -- it's just a question of when, and under what
circumstances. As America's current-account adjustment unfolds, the
macro
repercussions are inescapable -- a weaker dollar and slower US GDP
growth
are at the top of the list (see my 4 April dispatch, "On Current-Account

Adjustments"). But equally important, in my
opinion, is the likelihood that the rest of the world will now have to
figure out how to grow on its own -- weaning itself from over-dependence
on
a US-led
external demand dynamic. The only way to break the habit is by embracing

the tactics of reform and restructuring. In the long run, this would be
a
distinct plus for the global economy and world financial markets. But
over the
next several years, a dollar correction and slower US economic growth
could
come as a rude awakening.

                                Each of these forces in and of itself --

geopolitical tensions, trade frictions, or a US current-account
adjustment
-- would have potentially ominous consequences for world financial
markets.
But that's just the point -- in today's climate, each of these forces
can
no longer be considered in isolation.  Moreover, it is the interplay
between the repercussions of these forces that that has the potential to
be
so lethal -- the combination of higher oil prices, a weaker dollar,
slower
US GDP and world trade growth, and higher tradable goods inflation.
Ironically, for a world that had been listing toward deflation, the
outcome
would, instead, be painfully reminiscent of the stagflation of the late
1970s, when the confluence of a second oil shock and a dollar crisis
proved
devastating for world financial markets. While the fundamental macro
forces
driving the world economy over the past several years currently seem so
far
away from such an outcome, the playing field has tilted. And as tough as

that might be for the global economy, it would be even rougher for world

financial markets.

                                One of the great paradoxes of macro is
that
we macro practitioners tend to view the world with blinders.
Understandably, we typically concoct a "baseline" view of the world by
assuming away the things we know least about -- like political and
military
risks. Then when one of those risks comes into play, we scramble to
reshape
our views in accordance with our best assessment of the altered
circumstances. It's not an entirely unreasonable
way to operate, as long as you understand the assumptions that are
embedded
in your framework. But it can be frustrating. That's especially the case
in
this era of turbulence and instability, where the credibility of the
baseline macro forecast seems to be drawn into question more often than
not.

                                That's basically the key risk to any
macro
prognosis right now. Several powerful forces are simultaneously bearing
down on the world in a fashion that renders baseline forecasting all but

irrelevant. In theory, each of these forces qualifies as a potential
"exogenous shock" -- a development that, if it comes to pass, would have

only a transitory impact on the macro outcome.  The bad news is that the

interplay between these shocks could pose a serious challenge to a
baseline-driven consensus mindset. The good news is that shocks, by
definition, are usually transitory events, unfolding over a finite
period
of time. As soon as the shock subsides, reversion back toward the
baseline
will occur -- enticing forward-looking financial markets to then opt for

the rebound play. Unfortunately, as I see it in today's increasingly
treacherous world, that's putting the cart well before the horse."

Cheers,
Rob.