China was enjoying more than two decades of near uninterrupted rapid economic growth at the time of the onset of the financial crisis in mid-summer 2008. However, increasing fears that the United States- centered financial crisis would lead to a global contagion, and an ensuing decline in China’s robust export-led economy, led the country’s leaders to take immediate and dramatic defensive monetary policy changes.

China’s central monetary authorities firmly ‘directed’ the country’s four largest commercial banks, of which the central government owns more than 40% of their respective voting stock, to open the loan spigots. And loan they did! The result was that the assets of the four banks increased by almost an unprecedented 35% from late 2008 to mid 2010 – a period of only 18 months. 

This monetary stimulus, due to its size and short time period of application, was like pouring additional fuel on China’s domestic (economic) fire. Not only did China’s already globally high GDP growth rate continue but it actually accelerated into the 11% + range as this new wave of bank credit found itself flooding into already over–heated domestic real estate and infrastructure sectors.

Not surprisingly, this low double-digit rate of economic growth promptly lead to a rapidly increasing rate of domestic inflation that was rising uncomfortably above the target inflation rate established by China’s central bank,  the People’s bank of China (PBoC) , as a key component used to direct monetary policy.

This resulted in a 180-degree change of direction in monetary policy by the PBoC with the immediate and drastic clamping down on domestic commercial bank loan growth and money supply growth starting in mid 2010. With inflation quickly approaching an uncomfortable 6% annualized level the PBoC raised its key money market lending rate an historic six times in a row to a level just above the rate of inflation. Simultaneously, it also raised the commercial banks’ reserve requirements over 6% to an almost unheard of 21% where it sits presently.

This rapid reversal in monetary policy led to shift in the supply of credit from the heavily regulated and controlled commercial banks to the other source of credit – the shadow banks. Briefly, shadow banks are the non-deposit taking and therefore non-central bank regulated sources of credit in an economy. Typical shadowing banking ‘firms’ include mutual funds, life insurance companies, right through to ‘loan sharks’.

This abrupt change in the direct monetary policy and commercial bank credit availability, from super-loose to super-tight in less than a two year time period, saw a number of the country’s real estate developers and other small to medium sized enterprises (SMEs)  scrambling for credit and funds to complete their projects in progress. Often, this ‘scrambling’ eventually ends up on the doorstep of a shadow banker who is not regulated and therefore can conduct its lending and operations in a complete ‘laissez faire’ manner.

Not only do the shadow bankers have an near insatiable demand for their funds but they also have a very large supply of funds since savers, both individual and corporate, are driven from depositing all of their cash with commercial banks since the tight regulations on the commercial banks also restrict the maximum interest rates that can be paid to depositors – and currently that interest rate is below the inflation rate – so depositors in China are left with earning, at best, a negative real interest rates on their term bank deposits.

This combination of demand for credit and supply of funds from investors seeking positive real rates of returns on their liquid assets has understandably seen the Chinese shadow banking industry explode in size since early 2009.  Some analysts estimate that the Chinese shadow banking system currently has over RMB 14-15 trillion (or about US$ 2.25 trillion at current foreign exchange rates). This is almost a quadrupling in size of the shadow banking industry in the past two year! Equally important is that even the PBoC estimates that the domestic shadow banking system might be the source of between 8% and 40% of all credit generated in China in 2011.

The borrowers plight is quite evident that interest rates charged by the shadow bankers can range to well over 5% to 20% per month! Likewise, shadow bankers are luring many ex-bank depositors, now turned shadow bank investors/lenders, with ‘promised’ returns on their cash far in excess of the commercial bank regulated  deposit rates – and most importantly – the current rate of inflation in China.

Of course, the PBoC is very uncomfortable with the inherent and growing risks associated with the loans generated by the shadow banks for a number of reasons. First, is the ever increasing potential for massive loan defaults and accordingly loses by shadow banking investors and the social instability that can come along with it. Second, is the potential for spill-over credit and liquidity impacts on the regulated bank sector should a number of shadow bank loan failures result in losses on bank loans to the same borrowers. And third, is the recent realization that  the degree of monetary policy control in China has shifted dramatically from near maximum control  as recently as 2008,  to a current situation where almost 50% of all credit created in China will be outside of the monetary authorities’ control and influence.

Facebook co-founder and CEO Mark Zuckerberg at Facebook headquarters in Palo Alto, Calif., in 2007. The company is expected to file papers for an initial public offering this week.

In 1995, Netscape went public, spurring the dot-com bubble and the era of irrational exuberance of the late 1990s and early 2000s. Will Facebook’s IPO spell the beginning of a boom in Silicon Valley, or an end? Have investors on Wall Street learned from the irrationality of the dot-com bubble, or will this just be the next irrational wave of tech-company IPOs?

Facebook’s IPO is rational; Facebook has held off going public, as Google did before its IPO in 2004. The company has a sound business model, and the growth valuations for it are realistic: its revenue has doubled every year since its inception, totally 4.2 billion in 2011. Facebook has been savvy in its path to a public-offering; they have used private investments to reinvest in good employees and Research & Development. By deferring their IPO as long as possible, it will be ready to handle the many problems of going public.

The anticipation of investors surrounding Facebook’s IPO is unprecedented. It has the potential to create a chain reaction of IPOs from other major technology companies, who are not necessarily as ready for the massive transition in going public. The tech industry is exploding right now with investment: growth estimations are reaching the same levels that existed before the dot-com crash. The insurgence of smartphones and social media has fundamentally changed the economic landscape of the technology industry. There is no doubt that there is high-growth potential in Silicon Valley. These technologies are not only growing rapidly in the United States, but also in emerging economies.

However, all of this investment comes at a time when the US is in the longest prolonged dip in growth since the Great Depression, unemployment still hovers at 9%, Europe is in complete economic crisis, and emerging economies are starting to slow down. Is this capital really being invested in the most productive resources? Because of the battle for investors to find the highest short-term returns on their capital, tech-companies are the easiest way to make fast-cash, right now – and because of that, are attracting the most liquid capital available to firms. While tech-companies may provide the highest short-term returns, long-term returns may not be sustainable.

The general model of our financial system – that capital is allocated to the most productive resources – is one that reduces the likelihood of market inefficiencies. As capital has become more mobile however, investors are able to make an increasing number of short-term bets companies. This “short-termism” has led to companies that may have greater long-term returns not gettting the capital that they need. The current trend of capital being allocated to volatile tech-companies may not be the most efficient use of valuable financial resources, and it may not be the path to creating sustainable job opportunities. To jump to the more ideological realm of economics, I beg the question: should our goal be job creation for the jobless or high returns for the well-endowed? While these two goals are by no means mutually exclusive, they represent significantly different economic goals in a society with its highest unemployment rate in 30 years.

But in reality, there is only ever room for a few market leaders in any emerging industry, which investors will need to grapple with. The technology giants will continue to be profitable, as their business models are generally sound. But those lesser companies, who will inevitably be pushed to go public in the wake of Facebook’s IPO, will ultimately fail in their transition to becoming publicly-owned companies. In the years following Facebook’s IPO, I anticipate an explosion of dot-com IPOs. However, economic intuition tells me that most of these companies will fail. There is irrationality on Wall Street right now rivaling that of the late 1990s. These investors might want to make the trip from New York to see what’s actually going on in Silicon Valley.

Would you pay a few cents more for your coffee if could help alleviate poverty in developing countries? If so, then you are part of an emerging trend known as fair-trade; paying third-world producers more than the market price for their products to raise their standard of living and facilitate the development of the local community. While fair trade products have been around since WWII, their popularity has soared in the past decade with sales rising to 3.6 billion US dollars in 2007 according to Fairtrade International. This trend can be attributed to increased consumer awareness of the impoverished conditions facing many third-world producers. Documentaries such as Black Gold and The Price of Sugar depict just how little third-world farmers are paid for their products in comparison to the final retail price. The US Overseas Cooperative Development Council estimates the markup of coffee at around 1200% to 1500%, a testament to the massive trade chains that transport the product from coffee farmer to coffee drinker. This distortion of price has not gone unnoticed.

Rising consumer awareness of impoverished producer conditions has led to increased social pressure for government and businesses to assist the development of third-world countries. Modern consumers are no longer just concerned with price, quality and brand but have become more socially conscious of the products that they purchase. Unlike the completely rational consumer that exists in economic models, today’s shoppers will ask themselves whether social values have been met; whether producers were paid a fair price, whether products were locally grown and how much pollution was emitted in the whole process.  Enter the fair-trade industry; a system where agricultural and hand-crafted goods are purchased from producers at higher than market prices and then sold to consumers with the “fair-trade” label. According to statistics in Tim Harford’s The Undercover Economist, fair trade premiums have in some cases more than doubled the average third-world coffee farmer’s income as well as stimulating the local economy as more farmers have disposable income. The system has, for the most part, been effective in raising producer income to aid development but it has also been very popular with retailers for another reason.

Retailers love fair-trade products because it creates the opportunity to separate consumer groups and practice price discrimination. They can now sell two versions of the same product: one at regular price and the fair-trade version for an additional premium. This mechanism maximizes profit as it separates consumers who support certain social values such as third-world development and are willing to pay a premium from consumers who do not. The socially concerned consumer buys the fair-trade coffee and the unconcerned continue to buy coffee at the regular price. Now the retailer has taken some of the consumer surplus and transformed it into economic profit. But doesn’t the premium for fair-trade coffee go directly to the impoverished coffee farmer? As the Economist magazine reports, the extremely low cost of coffee beans per cup meant that “more than 90% [of profits] did not reach the coffee farmer.”

Eventually, consumers realized that coffee retailers were charging them an outrageous premium compared to the percentage that ended up in producer pockets. As a result of this poor publicity, retailers today offer fair-trade and regular coffee at the same price. The fair trade industry has also evolved into local groups called cooperatives that negotiate prices on behalf of groups of farmers. What used to be an almost perfectly competitive market has become less “competitive” thanks to strategic cooperation between farmers. The success of these cooperatives has been mixed; farmers can benefit from greater negotiating power and higher prices but lose individual autonomy and must pay fees to support the cooperative, just like an agent. The fair trade movement has arguably indirectly empowered producers to collectively negotiate for higher prices and better working conditions, a movement similar to modern labor unions.

Fair trade coffee is one example of a product inspired by ingenuity and social demand. In a sense, consumers were really paying for the novelty of a socially conscious product and firms were simply capitalizing on that trend. Today’s firms have clearly realized the potential of social marketing; buying Nestle water bottles supports breast cancer research, drinking Coca Cola saves polar bears, and using recycled paper napkins saves the environment. Whether these social goals are best served by the marketplace is unclear but the emergence of these social products shows that firms are trying to align themselves with changing consumer preferences and social values.

The history of America’s debt dates back to 1790, when Alexander Hamilton- now hailed “the father of America’s debt,” presented the Report on Public Credit to congress. It was here that “debt” was redefined into a vehicle necessary to drive America’s post-revolutionary economy. The essence was for the government to be in a permanent state of indebtedness to the people through government bonds to create investor confidence, which ensured that investors remained committed to the success of the government. However, given the original ideology of debt it seems that in 2011, all the debt seems to do is mount with no visible benefit. So where did all this go askew?

Hamilton envisioned government debt to be held by land-owning, white, American males. Simply put, the American debt was to be held by Americans. But in present day reality, the treasury owes $4.514trillion to foreigners, of which $1.435trillion is obligated to China, implying that $4trillion worth of foreign currency is flooding into the exchange market to purchase US securities. This results in a  depreciation of foreign currency in respect to the dollar, leading to its eventual appreciation. This in fact triggers a chain of economic reactions: Foreign imports become a more affordable commodity for Americans and the lower costs associated with a weaker foreign currency forces American firms to relocate assets on foreign soil to stay competitive. This produces a loss of jobs in the US as more jobs are moved abroad. In the long run, American industries becomes more reliant on foreign economies while domestic consumers switch to cheaper imports.

Stimulus packages rolled out by the US government starting in 2008 with the auto bailout, were designed to deal with the issues such as the unemployed and the loss of jobs to foreign competition. Ironically however, the bulk of fiscal spending is financed by bonds and securities with foreign claims. The results of the fiscal initiative were meagre and although held back the collapse of the automobile and financial sector, they seemed to just exacerbate US debt. To make things worse for the US, competitive foreign currency was a major catalyst for capital flight, a phenomenon which shocked the US aggregate supply as US industries simply moved abroad to compete. This coupled with faltering consumer and investment spending within the US caused by loss of jobs and the recession took a toll on the aggregate demand. This put the US in a peculiar fiscal trap. The cut down of fiscal policy would result in a decrease in aggregate demand joined with a supply shock resulting in a recession plus inflation, known as stagflation. But, a continuation in fiscal spending will only create a larger reliance on foreign debt, adding to the $14trillion deficit.

On August 6th S&P downgraded the US credit rating form AAA to AA+ on grounds of political disarray and the inability of the US government to successfully decrease deficit. The Obama administration quickly announced the following day the rollout plan for QE3 (Quantitative Easing 3), a process where financial assets are purchased to inject money into the ailing economy. It was an effort by the Obama administration to efficiently print more money. This came with a sigh of relief as it demonstrated that the US was far from defaulting but also came as a sign that QE3 could deter the strength of the dollar making each dollar worth less and adding to inflationary pressures.

The deficit leaves the US in a sticky situation. Printing money to cut deficit will result in inflation, whereas cutting government spending or raising taxes will simply make the recession worse. Furthermore, financial reliance on foreign governments excised American competitiveness in the world market. What seems to be the most promising solution seems to be  hidden in history with the father of debt- An en sync partnership of the Federal Reserve and government to increase transparency in policies to uplift the standing of monetary policy and raise investor confidence within the US, a change which must be made to ensure future economic success.

Q: What do Merrill Lynch, GE Credit Corp., Visa Inc., Ford Motor Credit Company, and the American International Group (AIG) have in common?

A: They are considered to be part of the United States ‘shadow banking system’.  

As either the sole or one of their primary business activities, these companies offer various types of credit-related products and services to both individual and corporate customers. The credit granted can be directly associated with the purchase of the company’s products (i.e. jet engines sold to an airline transportation company in the case of GE Credit, or an auto loan for the purchase of a new car by an individual in the case of Ford Motor Credit). Alternatively, it can be related to offering standard consumer retail credit in the case of Visa, or margin loans for their brokerage customers in the case of an investment bank/dealer such as Merrill Lynch.

Until the 1960s, commercial banks were the dominant supplier of credit to U.S. consumers and businesses. Commercial banks operated under regulation and supervision by the U.S. government banking regulators and the Federal Reserve. Accordingly, the majority of the credit created in the U.S. was easily monitored and controlled by changes in regulation and/or changes in capital or reserve requirements.

However, during the 1970s corporations in the United States began to compete effectively with the commercial banks in terms of loan origination through the establishment of company-specific financing subsidiaries. This disparate group of lenders was not subject to any of the regulation or controls applicable to the traditional banking industry – and hence the term ‘shadow banking system’ was applied.

The diagram below shows the growth of the U.S. banking systems liabilities as compared to the traditional banking system during the past 50 years. From a standing start in the early 1960s, it had grown by the 1990s to overtake the size of the liabilities in the traditional banking system. However, the real growth of the shadow banking system began in earnest and grew to a peak size of over US$21 trillion by 2008, which was also approximately 40% larger than the size of the traditional banking system at the time.

There are two primary factors that predicated the rapid growth of the shadow banking system in the United States: deregulation and asset securitization. The deregulation of the U.S. financial services industry further accelerated the expansion of these non-traditional lenders into all areas of loan origination by blurring the line of distinction between commercial banks and shadow banks. Secondly, the concurrent growth of the asset securitization market during the deregulation period permitted the shadow banks to obtain funds via the securitization of their various loans such as credit card receivables, automobile loans, as well as residential and commercial mortgages. Securitization involves the arms-length sale of financial assets by a company to a bankruptcy-remote entity commonly referred to as a special purpose vehicle (SPV) in return for cash. The shadow banks found many willing institutional investors to purchase their asset-backed securities (ABS), as institutional portfolio managers at mutual funds, pension plans and life insurance companies sought investment in ABS in order to both increase return and improve the overall diversification of their fixed income portfolios. Securitization allowed these non-bank entities to readily obtain financing directly from institutional investors rather than from the bond market or traditional bank corporate loans.

Despite its rapid growth and size, the shadow banking system did not receive much attention in the mainstream press until the 2008 financial crisis when a number of the larger shadow banks (and commercial banks) required significant amounts of government support and funding from the Federal Reserve and United States Treasury Department in order to prevent a further contagion in the U.S. and global financial markets. Discussion and analysis still exists around the role that the shadow banks played in the circumstances leading up to the financial crisis, as the Obama administration attempts to bring the shadow banking industry under some form of regulation in order to prevent this sector from contributing to a similar financial crisis in the future.

As indicated by the graph, the shadow banking system experienced an abrupt reversal in its long-term growth rate and experienced an unprecedented decline of approximately US$5 trillion since the time of the financial crisis. This rapid decline in size is due to a number of factors including the continued standstill in almost all types of ABS underwriting, the significant hardening in lending standards, and the unwillingness of business and individuals to borrow since the financial crisis. This shrinkage in the size and credit availability of the shadow banking system will further hinder the Federal Reserve’s current efforts to restructure the weakening U.S. economy, as it presently has no monetary policy or regulatory tools to encourage loan creation in the shadow banking sector.

Given the role that credit growth plays in U.S. economic growth, it is clear that the shadow banking sector will cast a very long shadow over its tepid economic recovery.

With slow economic growth, high unemployment, and an election around the corner, American politicians are looking for a scapegoat to blame for their economic woes in order to convince the public they are doing all they can to rectify their current situation.

The problem is that the U.S. policy makers have taken this too far with the passing of the “Currency Exchange Rate Oversight Reform Act of 2011″ by the U.S. Senate. This act will place steep tariffs on any nation that manipulates their currency to be undervalued. The bill is clearly targeted at China’s Yuan currency, as U.S. lawmakers believe their low exchange rate with the U.S. Dollar has led to the loss of American jobs and hindered the ability for domestic products to compete with Chinese imports. Immediately after this bill was passed, the Chinese government condemned it, saying the bill would not solve America’s problems of high unemployment and insufficient savings. China also warned that if this bill became law, then the result would be a trade war and a very unhealthy relationship between the two countries. In any trade war, everybody loses something, but the winner is determined by who loses less. Sadly, the American politicians do not see that in a trade war with China, the U.S. sits in a disadvantaged position.

To start, the Senate’s belief that a higher Yuan will allow jobs to be brought back from China is a far flung hope; China will still have the most efficient labour force and infrastructure which will allow China to keep producing cheaper products as compared to American manufacturers. Also, the jobs that would be lost in China will not return to the United States as they will merely move to another country with lower wages, such as Vietnam.

Another disadvantage is that the tariffs would also apply on the products produced by multinational corporations in China. These products account for 60% of China’s exports. Since many products are now produced in a global supply chain, these tariffs, along with Chinese retaliation, would cost 6500 American jobs for every 1% of lost Chinese exports to America. Furthermore, these tariffs would also hurt U.S. consumers as China and the U.S. no longer compete in most product markets in the U.S., so consumers will still have to purchase products produced in China. With extra tariffs, the consumer would be  forced into buying more expensive goods thus reducing consumption. Retaliation would also occur on U.S. imports into China where American companies will face significant barriers in the Chinese market and are likely to witness a reduction in profits costing additional American jobs in the service industry.

The economy would not be the only battlefield that the trade war would be fought on. It will also determine the way China and the U.S. will act on the global stage. China will probably use its economic clout and political power to block any U.S. goals on the international stage.

On the other hand, the Chinese economy would also suffer, but not to the extent of the U.S. though. A recent analysis has shown that a 25% tariff (the tariff rate proposed by some economists) on China would result in a 1% decrease in GDP. With a growth rate of 10.3% of GDP last year, China can weather the storm far better than the United States. This is due to the fact that China has been developing its own domestic demand and aggressively investing in emerging markets such as Africa and South America to make up for American demand.

Instead of waging a trade war that the U.S. would probably lose, America should use diplomacy to encourage the Chinese to increase the value of the Yuan. China has already recognized that it has to increase the value of the Yuan to tame the high inflation rate and to be able to import more goods to satisfy its increasingly wealthy consumer base. With the Yuan appreciating 7% against the dollar since June 2010, the U.S. should rethink their strategy on China and wait for the Yuan to continue appreciating instead of taking the huge losses associated with a trade war which could potentially result in America being replaced as the world’s predominant power.

In January of 2010 Apple introduced a truly transformative device. The iPad was sleek, portable, and capable of browsing the web in a fluid, stunning, and timely fashion. With millions of units sold, the iPad has been nothing short of game changing. The product was responsible for increasing web accessibility, inclusiveness, and the creation of a whole new tablet market segment. Since then, tablet computers have been characterized by their ability to bring the internet to people across the globe.

Though the iPad continues to dominate the tablet market, competitors have taken note of Apple’s success. Rivals have come and gone innumerably over the past year and it appears that no company can de-throne Apple’s revolutionary product. Paying no heed to this notion, Amazon, which has limited exposure to the tablet market, has taken a chance and decided to enter the market in hopes for success.  Their product, known as the Kindle Fire, has modest specs, and a very powerful web-browser. This device’s web-connectivity is seemingly identical to its Apple counterpart; however, it outshines the iPad in two ways: content and price.

Amazon is famed for the sheer volume and variety of products available for purchase in its online store. Customers describe their use of the website as a sort of addiction, and this sentiment is not far from the truth. The company’s most notable success has been in the online book market. Here, its Kindle e-reader family has connected millions of users from all walks to a vast repertoire of electronic literature. Now the Kindle Fire is bringing all of the features of other tablets, like a web-browser and media playback to its lineup. In fact, it is doing this at a fraction of the price of its competitors. At $199, Amazon is set to lose approximately $10 on every Kindle Fire sold. The company is likely to make this difference back many times over because of its integrated book, music, and television content store; where it has achieved economies of scale by making scores of sales at little cost on the margin.

This device will have huge market implications because it will serve as a catalyst for the widespread adoption of tablet devices. Cheap, portable computers like these are leading the charge towards universal web-access. This will have a significant  impact  in consolidating global markets and connecting producers with consumers. Increased market cohesiveness and constant connection to the information superhighway will mean a wider range of people will be able to partake in the virtual economy.

With the ability to execute transactions with such ease and quickness, transaction costs will fall. Lowering these costs will contribute to greater market efficiency and an overall rise in the volume of transactions made. This notion is the premise of Amazon’s acceptance of a market price below its total costs.

Additionally, because this device is so comparable to the iPad, it will finally bring genuine competition into the tablet market. This is likely to result in more innovative products, lower prices for consumers, and a shorter product pipeline with more new features offered on new models.

Overall the newest entrant into the tablet-computing race is a good thing for consumers. The Kindle Fire raises the bar in terms of price and power offered. This will set a precedent for future devices and is a needed substitute to the current tablet offering. It will be interesting to see how the tablet landscape changes with the Kindle Fire, however one thing is certain: millions of people who otherwise wouldn’t buy a tablet will be picking up a Kindle Fire.

Demonstrators burn a poster of the deceased Colonel Gaddafi during the Libyan revolution.

For the past 42 years, Libya has been plagued by tyrannical rule. After submitting to such oppression and dictatorship, the people of Libya finally decided to take to the streets and demand change. The fall of the omnipotent Muammar Gaddafi put a resolute end to the eight-month long revolution, which was prompted by a staggering unemployment rate of 21%, widespread poverty and a general suppression of human rights. Although the people have gained a sense of freedom, the downfall of Gaddafi has also collapsed the only semblance of administration. The National Transitional Council (NTC) has begun the slow process of drafting a constitution that will construct an organized form of government in Libya, which will be based upon sharia law (Islamic principles). But a nagging question remains – will the revolution be justified with the NTC mending the current economic state that has weakened Libya today?

The end to the Gaddafi regime symbolized the end of oppression and the beginning of liberalization for Libyans – in the form of social freedoms and greater economic opportunities. Under Gaddafi, Libya was ranked the most-censored nation in the Middle East and North Africa by the Freedom of Press Index as political dissent was met with execution, by law. This should all change with the formation of various political parties and a new wave of democratic policies. Equally, if not more importantly, the Libyan people are searching for economic stability and sustainability. These immediate concerns have dampened the prospects of the oil-rich nation. Under Gaddafi, Libya’s oil and energy sectors were steady, but only due to the sheer necessity of these natural resource endowments. Although, the nation was not able to fully capitalize on these attributes due to concerns over political stability, Libya’s underlying socialist ideals, and mismanagement of economic resources. Now with a new government Libya has a chance to begin anew by inviting foreign investment and building new trade relationships.

China has long been interested in Africa’s development, as seen through their steady investment in the continent through recent years. China’s trade with the region surpassed USD 120 billion with foreign direct investment reaching USD 76 billion in 2010. When Gaddafi was in power, he mostly resisted the temptation of China’s economic imperialism in the region. That said, China still dabbled its hand in Libya’s energy sector and infrastructure but was never able to get a stronghold on a resource it much needs – oil. China depends heavily on foreign oil; with Libya’s plentiful oil fields and a government looking to rebuild a nation, China’s money looks terribly tempting. On Libya’s part, they have done quite well in resurrecting their oil industry as production has rebooted after an 8-month hiatus during the revolution. China’s foreign investment should decrease unemployment and bring in new technologies and techniques to Libya. Although, China is not the only player in this game: Libya’s oil is a highly coveted resource and undoubtedly other powers will come for it – namely the United States. With U.S. involvement in Libya already high with the deposition of Gaddafi, they hold a strong bond with the NTC. Although the two nations’ relationship may have been strained in the past, they will definitely carry this newfound liking for each other into the future, with the United States benefiting from oil trade and Libya profiting from foreign investment and trade opportunities. This relationship could parallel the one between the US and Saudi Arabia, as although their political ideologies may not be congruent, the economic benefits of such a relationship outweigh their political differences. It seems as if Libya’s economic prosperity hinges around their most valuable asset – oil.

Libya will also be looking to strengthen its trade relations within the region. Tunisia, which has gone through a similar ordeal, could be a target as relations between two liberalizing economies would be mutually beneficial. The hope would be for more bilateral trade opportunities rising from liberalized economic practices, which would bolster growth in both countries.

Muammaer Gaddafi is gone – the easy part is over. Now comes the time for Libya to pick itself up and begin life in a new era of political freedom and the hope for economic prosperity.

On Friday, March 11^th, 2011, at approximately 2:46pm, a massive 8.9/9.0 magnitude earthquake hit the Pacific Ocean nearby Northeastern Japan. This earthquake was extremely powerful trailing the Great Chilean Earthquake by a mere 0.5 on the Richter Scale. Along with the earthquake came blackouts, fires and a tsunami, leaving nearly half-million people in shelters. As of March 14^th, the current death toll is 2,000 however according to recent reports, that number is estimated to rise to at least 8,000.

Many wonder how this devastating natural disaster will affect not only Japan’s economy, but also the global economy. According to many lead economists, it appears that Japan is at serious risk of falling into a recession, but most are hopeful that Japan will have the ability to quickly recover and possibly spare the global economy of a significant shock. However, David Rea, the Japan economist at Capital Economics, puts the chance of Japan having its economy shrink in the first quarter at about 95%, even though the quake came with only three weeks left in the quarter.

The industrial base of Japan experienced the worst of the disaster, after Nissan Motor Co., Ltd. Halted production at four factories, Toyota Motor Corporation closed two assembly plants and a parts factory and Sony Corporation closed six factories in the area hit. The closing of these factories, most definitely has global affects, especially since Japan is the world’s third-largest economy, as measured by gross domestic product. The production of these vehicles and parts, can easily be taken elsewhere in the world, but that takes up not time, but money. The current economic turmoil in Japan is sure to soon ripple out to the global economy. The most immediate worldwide consequence to the quake was a drop in oil prices. On Friday, oil dropped 3.6% to $99.01 a barrel in New York.

Investors are looking at the Kobe earthquake, which struck Japan in 1995, to help predict Japan’s future. After the Kobe earthquake, the Japanese Yen, which fell initially, quickly reversed and closed stronger against the dollar as capital came flowing back into the country, boosting the yen to an all-time high. Another positive sign appears when looking at the Nikkei 225 index, which within six months after the Kobe earthquake lost 25% of its value, but by the end of 1995, had fully recovered.

As for the rebuilding and restructuring of Japan, nothing is yet certain. AIR Worldwide predicted an early estimate from catastrophe modeling, revealing that insured losses will be between $15 to $35 billion, while others estimate damages will run more than $100 billion. Japan is already weighed down by massive debt of more than twice their current GDP, however economists believe the government will spend what is necessary to recover the country, and worry about the financials at a later time.