State Capitalism

These two paragraphs are a concise summary of how China goes about achieving growth in its economy:

"Central to China's approach are policies that champion state-owned firms and other so-called national champions, seek aggressively to obtain advanced technology, and manage its exchange rate to benefit exporters. It leverages state control of the financial system to channel low-cost capital to domestic industries—and to resource-rich foreign nations whose oil and minerals China needs to maintain rapid growth."

"China's policies are partly a product of its unique status: a developing country that is also a rising superpower. Its leaders don't assume the market is preeminent. Rather, they see state power as essential to maintaining stability and growth, and thereby ensuring continued Communist Party rule."

Dean, Jason, Brown, Andrew, and Oster, Shai, 2010. China's "state capitalism" sparks a global blacklash. The Wall Street Journal, Nov. 13.

I completely agree with this assessment. The combination of a policy of currency pegging and State control of the financial system are the drivers of economic growth for China. It is a relentless approach that seeks to acquire technology rather than to develop it domestically. In addition, there is a focus on a structural positive balance of trade to the detriment of developed countries.

From an American standpoint, I see little in the way of a policy to create reasonable and fair trade between China and the US. For years this issue has gone unaddressed and I think a great deal of the responsibility rests with poor government and corporate decision-making from 2000 until now.

I think the policy of currency pegging by the second largest economy in the world is insane and will ultimately lead to a massive miss allocation of assets within the global economy. The damage from such policies could last decades.

Japan -Q3 Growth

The news of Japan's impressive GDP growth for Q3 is welcome. However, as I understand most of the growth is stimulus driven. These incentives will expire soon.

Dew Water Harvesting

Prof. Kripa Varanasi of MIT has organized this seminar (below) and I think the topic is enormously interesting in the context of agriculture. The seminar is open and I encourage folks to attend.

My view is that water availability is a #1 issue going forward. Even in the US, a country with abundant water resources, there are areas where shortages exist. One of the basic themes of the MIT Field Intelligence Lab, a research unit within the Laboratory for Manufacturing and Productivity, is the unified study of water, energy, and agriculture. This is a unique research approach to problems that will affect the global economy within the next 20 years. From a broader perspective, MIT is establishing a Global Agricultural Initiative. More details to follow regarding this important development.

SPECIAL MECHANICAL ENGINEERING SEMINAR

Date: Tuesday, November 16, 2010
Time: 4-5PM, Room: 3-370

SPEAKER

Prof. Daniel Beysens,
CEA-Grenoble and ESPSI Paris Tech (France)
President, OPUR, International Organization for Dew Utilization

TITLE

From Breath Figures to Dew Water Harvesting

ABSTRACT

Breath figures are the characteristic pattern that water droplets form when condensing on a plane substrate. Its geometrical characteristics and dynamical properties are very uncommon because the growth is constraint on a space dimensionality lower than the droplet dimensionality. When the substrate is decorated (rough), a supplementary constraint is imposed that leads to unusual behaviour. The phenomenon of natural dew has many common characteristics with breath figures. It shows, however, a number of specificities, mainly related to the fact that it is an atmospheric phenomenon limited by radiative cooling. The possibilities of enhancing dew water yield for producing potable water will be addressed.

SPEAKER BIOGRAPHY

Daniel Beysens is Director of research at ESPCI - Paris Tech and at CEA -Grenoble (France), where he was head of department from 1995 to 1999. He holds a PhD in Physics (1973) and an Engineering diploma in Optics (1969). His area of expertise is phase transition: to obtain water from the air by passive radiative condensation (enhanced dew water) and in space conditions to improve the management of fluids with emphasis on near and supercritical conditions. The Physical Society (SFP) gave him the Ancel Prize of Condensed Matter Physics in 1985, he was decorated in 1995 as a knight of Palmes Académiques for outstanding data in education and research, he obtained in 2000 the Grand Prix of the French Academy of science for the discovery of a new thermalization process in space, received in 2007 the Prize of Innovative Technologies for the Environment, bestowed by ADEME and in 2008 he was given the Emergence award, bestowed by the Ministry of Research. He was between 2003 and 2007 President of the European Low Gravity Research Association www.elgra.org and is since 1999 the President - founder of the OPUR International Organization for Dew Utilization www.opur.fr.

"Acoustically Engineered Materials using Acoustic Radiation Force"

This is an upcoming seminar:

LABORATORY FOR MANUFACTURING AND PRODUCTIVITY SEMINAR SERIES

Date: Tuesday, November 16, 2010
Time: 12:00 pm, Rm. 33-116

SPEAKER

Dipen N. Sinha
Director, Sensors and Electromechanical Devices Group
Los Alamos National Laboratory

TITLE

Acoustically Engineered Materials using Acoustic Radiation Force

ABSTRACT

Traditional device fabrication and manufacturing involve lithography, chemical processing, various deposition processes, and self-assembly among others. In some applications, such as designing metamaterials, one requires methods to create 3D patterns of materials where the traditional methods are neither convenient nor possible to use. In the case of acoustic metamaterials, the majority of the materials built so far by researchers elsewhere is in the cm length-scale and use mm-size solid spheres, cavity resonators or other inclusions. Because of the mechanical fabrication techniques used, scaling to smaller length scales is both problematic and difficult. We are exploring an acoustic approach that allows fabrication of novel materials where the length scale can be extended by orders of magnitude, from a few nanometers to 100s of microns. This approach is based on acoustic radiation force to manipulate particles (nano/micro-sized) into a wide range of 3D patterns in a host fluid that can be solidified. This is a bench-top, inexpensive technique and the whole process is rapid (~10s of seconds). The periodicity of the pattern formed is highly tunable. Almost any kind of particle can be used (metal, insulator, semiconductor, superconductor, piezoelectric, hollow or gas-filled spheres, nanotubes and nanowires etc.) The technique can be adapted for large scale manufacturing. Both the types of materials that can be engineered by this approach and thepossible applications of these new materials can be wide-ranging.

BIOGRAPHY

Dipen Sinha, a physicist, has been with the Los Alamos National Laboratory since 1980. He is the Team Leader of the Acoustics and Sensors Technology team in the Materials Physics and Applications Division. He started as a low temperature physicist but then branched into areas ranging from biomedical to industrial research. He considers his specialty to be a problem solver. His present interests include the development of the technique for acoustically engineering novel materials, acoustic nonlinear imaging, acoustic separation techniques, and adapting the swept frequency acoustic Interferometry and acoustic resonance spectroscopy techniques that he had earlier developed for defense related applications (noninvasive chemical and biological weapons detection) to biomedical and environmental sensor applications; monitoring industrial process and quality control applications, sensors for down hole petroleum monitoring, and a range of diagnostic instruments in many areas of science and technology. He has published in the areas of dynamics of phase transitions, ultra-high speed measurements, high-temperature superconductivity , chemical sensors, instrumentation, and ultrasonic spectroscopy. He holds 20 patents. He is the editor of a recent Handbook on Elastic Properties of Solids, Liquids, and Gases. He has won three R&D 100 awards, a Popular Science 100 award, and has received Los Alamos National Laboratory’s Distinguished Performance Award (1997, 2005), the Distinguished Licensing Award (2002) and two Distinguished Patent Awards (2007, 2008).

* Food and refreshments will be served afterwards *

The Rising Tide Against the Federal Reserve

I notice that there is mounting public criticism of quantitative easing II (QE II), the new program of government bond purchasing put forth by the Federal Reserve. The level of the criticism is somewhat unprecedented and rooted in populist sentiment. Today there will be a letter published by the Wall Street Journal and the New York Times as a paid advertisement that is critical of the Fed.

While I have mixed feelings regarding QE II and some of the moves by the Fed Chairman Ben Bernanke, I believe there should be independence for the Central Bank. The Fed chairman by virtue of his position sees a perspective of the US and global economy that is unique and comprehensive. Populist anger over the Fed has been ongoing for more than 100 years in America mostly from the Midwest and West. This anger and resentment alone is not a good reason to criticize the Fed.

I think the current group of vocal critics totally ignore the potentially devastating near and medium-term effects of deflation, something that I believe is a real possibility in the aftermath of perhaps the greatest asset bubble in the history of economics.

First and foremost, QE II is a near desperate action against deflation. I think the chances of this move creating hyperinflation are slim. A recent poll of economists supports my view.

In addition, critics seem to ignore the rising storm clouds involving international trade. Simply put, America cannot continue with a negative balance of trade. It is sucking the life out of the economy. Currency pegging by China and various monetary interventions from Central Banks around the world are causing havoc that can only translate into reduced global economic growth for 2011 and perhaps beyond. Trading partners who have a single-minded focus on exports look to the US economy as a means of domestic growth. This is not a sustainable situation and will continue to lead to rising global tension.

I believe the Fed's policy of QE II is partially in response to international trade practices by export oriented economies, which are destined to disrupt the global economy for many years into the future unless America takes immediate action to send a strong signal in favor of reason.

The populist critics seem to miss these points.

In the history of America, populism in its raw form has never been something of great political significance mostly because the movement's positions are seldom consistent over time.

For some reason, Central Bank monetary policy has always been the target of the populists. With the 2010 midterm election victory by the Republicans, one of the greatest challenges for the new leadership will involve moderating extreme positions advocated by the populists, who often feel all economic problems are local. A shift inward toward isolationism will do perhaps more damage to the US economy than any other policy.

Hits to my Blog

It is interesting that since June, S. Korea has the third most views of my blog.

This might be because our book titled GLOBAL RFID has sold well in the country.

I think it is true that S. Koreans are more open to the US compared to China.

In an event, I am happy to have many S. Korean friends.

East Headwinds and 2011

The big news is correctly summarized this week in Barron’s and represents a turning point for the global economy:

Abelson, Alan, 2010. A double hex. Barron's, Nov. 13.

By the two quotes listed below, I think it is safe to assume that there exists a serious question regarding global growth prospects for 2011:

"China, meanwhile, is facing a flare-up of inflation and, to date at least, its efforts to douse it have not been conspicuously successful, despite the proclivity of the chaps who run the country's command economy to put the best smiley face possible on official numbers. In October, the Sino consumer-price index shot up at a 4.4% annual rate over October 2009 and, as ISI Group points out, a 0.8% jump over the previous month."

"Even more ominous, the money supply, which unless controlled acts as the feedstock of inflation, expanded at a scorching 28.7% annual rate and over the past three years has risen some 24%. Not exactly a big surprise, then, that Chinese banks have been on a lending spree; last month alone, they coughed up $89 billion in new loans."

Bottom line, such a rapid expansion of the Chinese money supply almost guarantees a significant problem with inflation. Further, the issue of new loans to business at a rapid pace probably means greater risk of default. Inflation plus defaults equals significant downward pressure on economic growth. Add a policy of currency pegging to the mix and I think equity markets are correct in anticipating the making of an economic disaster.

Given a stable society were a large percentage gain some advantage from an economic expansion, the three pillars of doom (inflation, defaults, and pegging) might not cause a calamity. However, under different political situations this assumption does not hold.

Alan Abelson captures this point brilliantly in the following quote:

"As we've observed more than once, given the sheer size of China's increasingly testy population, and the yawning gap between the comparatively few in the upper reaches of the income scale and the mass of the citizenry, a delicate balance between keeping smoke curling out of its factories and keeping inflation in check is an imperative. Put us down among the doubters that it can pull off that neat financial trick."

I think it is possible that China's growth could slow along with that of Germany. Given weak American growth, the odds are that 2011 might be another lean year in GDP growth, equity prices, and perhaps even certain commodity prices.

Is it too early to look toward 2012?