Global imbalances in a number of countries are back on the front burner. Here is a roundup of news from France, China, Japan, and the UK.

France hit by new wave of strikes over pension reforms

The BBC reports France hit by new wave of strikes over pension reforms

Almost half a million people have taken to the streets of France in a sixth national day of action against planned pension reforms, officials say. Strikes have hit transport and education, 4,000 petrol stations have run dry and police have clashed with protesters in several cities.

Shops were looted in Lyon and cars were set on fire in a Paris suburb. President Nicolas Sarkozy appealed for calm but insisted he would press ahead with plans to raise the retirement age.

The BBC’s Christian Fraser, in Paris, says there is a feeling that the demonstration could turn angry, with a noticeable change in atmosphere since last week.

Strikes Hit Refineries

The BBC reports French strikers intend to keep going for seventh day

The scale of disruption has begun to affect large parts of society, with strikes at France’s 12 oil refineries hitting fuel supplies hard. Prime Minister Francois Fillon announced plans to end the shortages by asking oil companies to share their reserves to replenish stocks at petrol stations.

Overnight, police lifted the blockade at three fuel depots in Le Mans, La Rochelle and Donges. However, AFP news agency later reported that strikers had again blocked the depot at Donges.

Officials said 379 secondary schools were either blockaded by pupils or had suffered some disruption, the highest number since the protests began at the start of September. In some areas, schools became a focus for violence. Outside a secondary school in the Paris suburb of Nanterre, youths threw stones at police who responded with tear gas.

For the second day running, cars were overturned and set alight in Lyon. There were also disturbances in Mulhouse and Montbeliard in eastern France.

China Hikes Rates to Curb Asset Bubbles

Bloomberg reports China Could Increase Rates More

The central bank of China yesterday unexpectedly increased borrowing costs for the first time since 2007, lifting the benchmark one-year lending rate to 5.56 percent from 5.31 percent. Policy makers there are trying to curb lending and prevent an asset-price bubble.

“This move is consistent with their broader policies,” John Lipsky, the IMF’s first deputy managing director, said in an interview in Tokyo today. “I don’t believe they look to monetary policy or interest-rate policy alone as a way of moderating growth in inflation pressures. But it’s perfectly possible that they’ll, if needed, continue to use interest rates as well as other policies.”

China’s monetary tightening came days ahead of a meeting of Group of 20 finance authorities where the yuan is likely to be discussed. China and other emerging economies have been criticized for keeping their currencies weak to benefit exporters. Emerging economies, for their part, have complained that easy monetary policy in advanced economies is leading to capital pouring into their markets.

One certainly has to wonder if this is a ploy ahead of G-20 meetings. Then again, China is overheating. Regardless, hiking rates will put upward pressure on the Yuan. However, if the global economy falters and Chinese exports with it, China is almost certain to slow appreciation of the Yuan, inflation or not.

Accord Reached?

BNY Mellon says China Rates, Geithner Talk May Signal Accord

China’s increase of its lending and deposit rates and U.S. Treasury Secretary Timothy F. Geithner’s commitment to a strong dollar may suggest the nations have reached a currency accord, Bank of New York Mellon Corp. said.

“The timing of this week’s comments and policy shifts at least allows the possibility that some agreement has been reached,” Simon Derrick, chief foreign-exchange strategist in London, said today in an e-mailed note. “If some kind of accord has been reached then this would be hugely significant, signaling trend reversals in a wide range of markets.”

I will be amazed if any kind of meaningful, lasting accord of global currency issues is reached. Agreements to agree at some later date are not meaningful.

Rare Earth Embargo Escalates

The New York Times reports China Said to Widen Its Embargo of Minerals

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of those materials to the United States and Europe, three industry officials said on Tuesday.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of products as diverse as cellphones, large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies.

China experts said on Tuesday that Beijing’s assertive stance on rare earths might also signal the ascendance of economic nationalists, noting that the Central Committee of the Communist Party convened over the weekend.

Japanese Recovery at Standstill

The BBC reports Japanese economy ‘at standstill’

The Japanese economy is at a standstill, Japan’s government has said, as concerns about the strong yen continue to grow. The recovery in the economy was “pausing”, the Cabinet Office said in a monthly statement.

It is the most negative the government has been about the economy in nearly two years.

Less War Mongering for the UK

Here is some genuinely good news from the UK: Strategic defence review means end of Iraq-scale military interventions

Britain’s armed forces will no longer be able to mount the kind of operations conducted in Iraq and Afghanistan, the government’s strategic defence review made clear today. For at least a decade it will also be impossible to deploy the kind of carrier taskforce which liberated the Falklands 28 years ago.

Though defence chiefs said today they will still have significant expeditionary forces, they will not be able to intervene on the scale of recent years.

Cherished projects will be delayed, cut or dumped in an attempt to recoup a massive overspend in Britain’s defence budget, which faces a black hole of £36bn. In the MoD, 25,000 civilian jobs will go, along with 17,000 from the armed forces. The £38bn annual defence budget will be cut by 8% over the next four years.

The construction, mainly in Scottish shipyards, of two aircraft carriers – the largest ships ever built for the navy – will go ahead even though there will be no planes to fly from them until 2020 at the earliest. That is because the existing fleet of Harriers will be scrapped immediately and an as yet unknown number of US Joint Strike Fighters due to replace them will not be ready for another 10 years.

In an expected and politically convenient move – though sharply attacked by some Conservative backbenchers – the government put off a decision on replacing the existing fleet of four Trident nuclear missile submarines until after the next general election, due in 2015.

The government also decided to Withdraw 20,000 British military personnel from Germany by 2020.

What the hell does the UK have 20,000 troops in Germany for in the first place. It should pull them all out now, not in 2020. Of course the US should do the same, from everywhere. We have troops in 140 countries. The goal should be none.

UK to Fire 10% of Public Sector Workers

Here is more genuinely good news, assuming it is true. The Mail Online reports 500,000 public sector jobs to go

  • David Cameron and Danny Alexander snapped with secret drafts
  • 1 in 10 public sector jobs to go as government gambles on private recovery
  • Speculation mounts of deliberate ‘leaks’ by government ministers

The coalition expects 500,000 public sector jobs to be lost as a result of the drastic spending cuts, it was revealed today.

Danny Alexander let slip the forecast when he was spotted driving into the Treasury with an open copy of the Comprehensive Spending Review on his lap.

The Chief Secretary to the Treasury – who has been nicknamed Beaker after the Muppets character – was reading the document, which was caught on camera by waiting photographers.

While figures in Mr Cameron’s documents appeared to show the defence budget was to be cut by 6 per cent, the Prime Minister confirmed to the Commons this afternoon that the department’s cuts will be 8 per cent.

The fact that both were photographed on the same day has sparked speculation that the papers were deliberately ‘leaked’ to soften the blow ahead of the official announcements.

What do you call dismissal of 10% of the public sector workforce?

A start.

We need to do the same thing in the US.

Mike “Mish” Shedlock
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