Rumblings of change

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By BUNN NAGARA

With the fast-rising giant that is today’s China, few established things can be assumed to be the same.

EVENTS that have become established through routine tend not to create a fuss, whatever the contentious issue may be.

However, when routine events produce surprising results, the implications may multiply exponentially. Such is the case with annual US arms sales to Taiwan, and China’s angry reactions to them.

Even though different years may see different combinations of disagreements between Beijing and Washington, the arms sales drama played out between the two capitals over a largely silent Taipei is an annual soap opera worth noting for the scale of its implications.

US plans to sell Taiwan US$6.4bil (RM20.3bil) of weapons last year strained relations between Beijing and Washington badly. Not only was this the largest amount in nearly 20 years, it came together with several other disagreements at the time.

The result was that Beijing suspended military relations with the US from January, besides considering sanctions against private US arms makers involved. The sale was a left-over from the preceding Bush administration’s policy that the Obama White House had tried to usher through.

This year it was “arms sales to Taiwan time” in Washington again. Taiwan had asked for a considerable package, but the US had been having second thoughts.

Taipei had sought a range of new weapons including a new fleet of F-16 jet fighters. But this time Washington said no, mindful of Beijing’s ire.

Instead of the new F-16s, Taiwan will instead get US$5.85bil (RM18.5bil) of “upgrades” for its existing fleet. That in turn led to some bipartisan criticism of the Obama administration in Congress.

Interestingly, Taiwan did not complain about the downgraded weapons sales. Instead it officially congratulated Washington for “going ahead” with its arms sales programme, all too aware of its weak position in the strategic triangle.

For China, any US military aid to Taiwan is still military assistance that could be used to attack the mainland, so Beijing protested all the same. But the atmosphere this time has become less antagonistic.

Just as the US had said no to Taiwan, albeit within limits, China’s protests were largely limited to news media commentaries and defence establishment statements. Both the US and China have come to a new understanding of each other’s concerns and their mutual interests.

Chinese Foreign Minister Yang Jiechi assured US businessmen in New York that bilateral relations would continue to grow, right after asking Washington to stop the jet upgrades. Those upgrades were not going to stop, especially when they were already a softer alternative to the full-blown sale of new F-16s, and China seemed satisfied enough with that.



Military might

The other issues at stake this year include China’s own military development, of which China watchers in the US are taking due note. However, a more significant factor for the US is a possible run on the dollar given that so much of US wealth, and loans, lies in China’s hands.

For its part, China is arranging for its next president, Xi Jinping, to visit Washington later this year. That means no souring of relations with the US is to be advised.

The US itself is gearing up for a presidential election next year. Washington is therefore understandably on its toes for now in regard to its relations with a fast-rising China.

All of this seems to leave some of the smaller countries in East Asia somewhat disoriented. Accustomed to US military and diplomatic dominance in the region for more than half a century, any sign of the US receding into the Pacific distance can be disconcerting for them.

This applies particularly to those countries that had hosted US military bases for decades.

Two days ago, the Philippines tried to form an Asean front by establishing a panel of legal experts in dealing with China’s claim over disputed islands in the South China Sea. The government of President Benigno Aquino III has consistently been active on this issue, notwithstanding the limited response it has received.

One reason for the apparent lack of Asean enthusiasm for Aquino’s plans is that he is trying to tackle a huge and long-established issue as Asean’s youngest leader with no clear direction.

Another reason is that Manila is sending confusing if not also conflicting signals over the issue. Last week the Philippines announced that Aquino would bring the issue of the disputed islands to Japan on his visit to Tokyo.

Japan has no involvement with claims to disputed islands in the South China Sea, although like the Philippines and Taiwan it has a security arrangement with the United States. Those arrangements vary in their terms and degree of US obligations, so taken together they are asymmetrical and non-comparable.

There is a sense in Asean that if disputes within Asean have yet to be solved within and by Asean, they are unlikely to be solved outside Asean.

To compound the confusion further, President Aquino was in Beijing from late last month to early this month soliciting for Chinese investment in the Philippines. From 2009 to 2010, bilateral trade grew more than 35%.

Aquino then said the trade was mostly in China’s favour, and he would like to balance it. He is more likely to succeed there than in competing claims over territory.

A current strand of opinion among US strategic thinkers is that the Philippines is beginning to see China as a “big brother” substitute for the US in East Asia. But given Manila’s actions and policies so far, nobody is likely to know what the Philippines wants to do, least of all Filipino lawmakers themselves.

NASA satellite falls back to Earth !

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Dead satellite likely fell into Pacific Ocean--maybe

By: William Harwood, CNET

NASA's decommissioned 6.3-ton Upper Atmosphere Research Satellite, out of gas and out of control after two decades in space, plunged back into the atmosphere early Saturday, heating up, breaking apart, and presumably showering chunks of debris along a 500-mile-long Pacific Ocean impact zone.
Maybe.

U.S. Strategic Command radar tracking indicated re-entry would occur around 12:16 a.m. EDT (GMT-4) Saturday as the satellite was descending across the Pacific Ocean on a southwest-to-northeast trajectory approaching Canada's west coast. If re-entry occurred on or before the predicted time, any wreckage that survived atmospheric heating almost certainly fell into the Pacific Ocean.

NASA's derelict Upper Atmosphere Research Satellite fell to Earth Saturday, presumably into the Pacific Ocean west of Canada. But it's not yet a sure thing.

"Because we don't know where the re-entry point actually was, we don't know where the debris field might be," said Nicholas Johnson, chief orbital debris scientist at NASA's Johnson Space Center.

"If the re-entry point was at the (predicted time) of 04:16 GMT, then all that debris wound up in the Pacific Ocean. If the re-entry point occurred earlier than that, practically the entire pass before 04:16...is over water. So the only way debris could have probably reached land would be if the re-entry occurred after 04:16."

Johnson said amateur satellite watchers in the U.S. northwest and the Canadian southwest were "looking to observe UARS as it came over. Every one of those attempts came up negative. That would suggest that the re-entry did, in fact, occur before it reached the North American coast, which, again, would mean most of this debris fell into the Pacific."

But it's not yet certain and it's equally possible a delayed re-entry resulted in debris falling somewhere in northern Canada or elsewhere along the trajectory.

"We may never know," Johnson told reporters in an afternoon teleconference.

The centerpiece of a $750 million mission, the Upper Atmosphere Research satellite was launched from the shuttle Discovery at 12:23 a.m. EDT (GMT-4) on Sept. 15, 1991. The solar-powered satellite studied a wide variety of atmospheric phenomena, including the depletion of Earth's ozone layer 15 to 30 miles up.

The long-lived satellite was decommissioned in 2005, and one side of its orbit was lowered using the last of its fuel to hasten re-entry and minimize the chances of orbital collisions that could produce even more orbital debris. No more fuel was available for maneuvering and the satellite's re-entry was "uncontrolled."

As with all satellites in low-Earth orbit, UARS was a victim of atmospheric drag, the slow but steady reduction in velocity, and thus altitude, caused by flying through the tenuous extreme upper atmosphere at some five miles per second.

UARS' final trajectory as it neared the discernible atmosphere proved difficult to predict. The descent slowed somewhat Friday, presumably because the spacecraft's orientation changed. As the day wore on, the predicted impact time slipped from Friday afternoon to early Saturday.

Johnson said falling satellites typically begin breaking up at an altitude of around 50 miles. In the case of UARS, computer analysis indicated about 26 pieces of debris would survive to reach the surface, spread out along a 500-mile-long down-range footprint. Johnson said the heel of the footprint, the area where the lightest debris might fall, is typically 300 miles or so beyond the breakup point.

But so far, "we've got no reports of anyone seeing anything that we believe are credible," Johnson said.

Johnson told reporters last week he expected most of the satellite to burn up as it slammed into the dense lower atmosphere at more than 17,000 mph. But computer software used to analyze possible re-entry outcomes predicted 26 pieces of debris would survive to impact the surface, the largest weighing some 330 pounds. Impact velocities were expected to range from 30 mph to 240 mph.

"We looked at those 26 pieces and how big they are, and we've looked at the fact they can hit anywhere in the world between 57 north and 57 south, and we looked at what the population density of the world is," he said. "Numerically, it comes out to a chance of 1 in 3,200 that one person anywhere in the world might be struck by a piece of debris. Those are obviously very, very low odds that anybody's going to be impacted by this debris."

For comparison, some 42.5 tons of wreckage from the shuttle Columbia hit the ground in a footprint stretching from central Texas to Louisiana when the orbiter broke apart during re-entry in 2003. No one on the ground was injured and no significant property damage was reported.

An astronaut picture of the UARS satellite being deployed in 1991.

Photograph courtesy NASA

An astronaut picture of the UARS satellite being deployed in 1991.

Photograph courtesy NASA

Traci Watson for National Geographic News 

Defying predictions one last time, NASA's doomed UARS satellite dove through Earth's atmosphere late last night over the North Pacific Ocean, off the U.S. West Coast, the space agency says. (Also see "Space Debris: Five Unexpected Objects That Fell to Earth.")

As recently as Friday morning, U.S. officials had forecast that the Upper Atmosphere Research Satellite, or UARS, would fall out of the sky in the late afternoon or early evening Friday, eastern time.
(See "NASA Satellite Falling Faster Due to Solar Activity.")

But the satellite shifted position as it tumbled toward the planet, forcing scientists to throw out their earlier time estimates.

NASA said early Saturday that UARS fell out of orbit sometime between 11:23 p.m. and 1:09 a.m. ET.
Amateur satellite trackers in places such as San Antonio, Texas, and northern Minnesota reported catching glimpses of UARS as it made its final, doomed circles around Earth.

Though the spacecraft plummeted over the Pacific, it's still not clear exactly where debris from the satellite has landed. Pieces of the satellite will be strung along a debris "footprint" stretching 500 miles (800 kilometers).

So far there are "no reports of any damage or injury," NASA said via Twitter close to midday Saturday.
Satellite Pieces Not For Sale

UARS, which weighed more than six tons, was lofted into orbit by the space shuttle Discovery in 1991. The craft recorded data on Earth's atmosphere until it was switched off in 2005.

Some 1,100 pounds (500 kilograms) of debris from the satellite were projected to survive the superheated descent through the atmosphere. The biggest intact piece, NASA said, would probably be a 300-pound (140-kilogram) chunk of the spacecraft's structure.

NASA warned the curious not to touch any pieces of the spacecraft that may have made it to the ground, because of the risk of sharp edges.

The space agency also tried to head off sales of UARS remnants on Internet auction sites such as eBay.
"Any pieces of UARS found are still the property of the country that made it," NASA warned via Twitter this morning. "You'll have to give 'em back to U.S."

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Lifeless satellite falls back to Earth

(China Daily)

Junk left from colliding satellites floats through space in this computer-generated image. NASA confirmed that two communication satellites from the United States and Russia collided 800 kilometers above northern Siberia on Sept 10. [Provided to China Daily]

NASA assures public that there is little chance of getting hit by debris

WASHINGTON - Fragments from an old 6-ton NASA satellite hurtled toward Earth on Friday, while the exact site of the crash-landing remained a mystery into the final hours.

The US space agency has stressed that the risk is "extremely small" that any of the 26 chunks that are expected to survive the fiery re-entry into Earth's atmosphere will hit one of the planet's seven billion people a one in 3,200 chance.


"Re-entry is possible sometime during the afternoon or early evening of Sept 23, Eastern Daylight Time," NASA said on its website on Thursday night.

That would be early morning Saturday Beijing time.

"It is still too early to predict the time and location of re-entry with any more certainty, but predictions will become more refined in the next 24 hours."

The influence of solar flares and the tumbling motion of the satellite make narrowing down the landing a particularly difficult task, experts said as the Internet lit up with rumors of where and when it would fall.

The US Department of Defense and NASA were busy tracking the debris and keeping all federal disaster agencies informed, a NASA spokeswoman said.

The Federal Aviation Administration issued a notice on Thursday to pilots and flight crews of the potential hazard and urged them to "report any observed falling space debris to the appropriate (air traffic control) facility and include position, altitude, time and direction of debris observed," CNN said.

The satellite was launched in 1991 and was designed to provide data for better understanding Earth's upper atmosphere and the effects of natural and human interactions on the atmosphere. The satellite was deactivated in 2005 as it ran out of fuel and was left orbiting Earth.



Orbital debris experts say space junk of this size from broken-down satellites and spent rockets tends to fall back to Earth about once a year, though this is the biggest NASA satellite to fall in three decades.

NASA's Skylab crashed into western Australia in 1979.

The surviving chunks of the tour-bus sized satellite will include titanium fuel tanks, beryllium housing and stainless steel batteries and wheel rims. The parts may weigh as little as one kg or as much as 158 kg, NASA said.

Orbital debris scientists say the pieces will fall somewhere between 57 north latitude and 57 south latitude, which covers most of the populated world.

The debris field is expected to span 800 square kilometers.

Pang Zhihao, a researcher from the Chinese Research Institute of Space Technology, told Xinhua that the crash could have been avoided had the satellite been put into a higher orbit, or manipulated to drop in the South Pacific when it had abundant fuel.

Pang said most spacecraft will incinerate upon re-entering Earth's atmosphere, and the debris will mostly likely fall into the ocean or hit an uninhabited area.

NASA has also said that in 50 years of space exploration no one has ever been confirmed injured by falling space junk.

The craft contains no fuel and so is not expected to explode on impact.

"No consideration ever was given to shooting it down," NASA spokeswoman Beth Dickey said.
NASA has warned anyone who comes across what they believe may be debris not to touch it but to contact authorities for assistance.

Space law professor Frans von der Dunk from the University of Nebraska-Lincoln's College of Law told AFP that the United States will likely have to pay damages to any country where the debris falls.

"The damage to be compensated is essentially without limit," von der Dunk said, referring to the 1972 Liability Convention to which the United States is one of 80 signatories.

"Damage here concerns 'loss of life, personal injury or other impairment of health; or loss of or damage to property of States or of persons, natural or juridical, or property of international intergovernmental organizations,'" he said, reading from the agreement.

However, the issue could get thornier if the debris causes damage in a country that is not part of the convention.

"The number of countries so far theoretically at risk is rather large, so there may be an issue if damage would be caused to a state not being party to the Liability Convention," he said.

AFP-Xinhua

Huge Tumbling Satellite Could Fall to Earth Over US Tonight or Saturday, NASA Says

by Tariq Malik, SPACE.com Managing Editor

The Upper Atmosphere Research Satellite is in the grasp of the remote manipulator system end effector above the payload bay of the Earth-orbiting Discovery during STS-48 pre-deployment checkout procedures. CREDIT: NASA Johnson Space Center View full size image

This story was updated at 2:04 p.m. ET

A huge, dead satellite tumbling to Earth is falling slower than expected, and may now plummet down somewhere over the United States tonight or early Saturday, despite forecasts that it would miss North America entirely, NASA officials now say.

The 6 1/2-ton Upper Atmosphere Research Satellite (UARS) was expected to fall to Earth sometime this afternoon (Sept. 23), but changes in the school bus-size satellite's motion may push it to early Saturday, according to NASA's latest observations of the spacecraft.

 "The satellite's orientation or configuration apparently has changed, and that is now slowing its descent," NASA officials wrote in a morning status update today. "There is a low probability any debris that survives re-entry will land in the United States, but the possibility cannot be discounted because of this changing rate of descent." [Complete coverage of NASA's falling satellite]

NASA expects about 26 large pieces of the UARS spacecraft to survive re-entry through Earth's atmosphere and reach the planet's surface. The biggest piece should weigh about 300 pounds. The spacecraft is the largest NASA satellite to fall from space uncontrolled since 1979. [6 Biggest Spacecraft to Fall Uncontrolled From Space]

NASA officials have said the the chances that a piece of UARS debris hits and injures one of the nearly 7 billion people on the planet are about 1 in 3,200. However, the personal odds of you being struck by UARS satellite debris are actually about 1 in several trillion, NASA officials have said.

As of 10:30 a.m. EDT (1430 GMT) today, the UARS satellite was flying in an orbit of about 100 miles by 105 miles (160 kilometers by 170 km), and dropping.  NASA launched the UARS satellite in 1991 to study Earth's ozone layer and upper atmosphere. The satellite was decommissioned in 2005.

"Re-entry is expected late Friday, Sept. 23, or early Saturday, Sept. 24, Eastern Daylight Time," NASA officials wrote. "Solar activity is no longer the major factor in the satellite's rate of descent."

The sun has had an extremely active week, one that has included several solar flares. High solar activity can cause the Earth's atmosphere to heat and expand, which can increase drag on a low-flying satellite like UARS, making it fall faster.

Get a snapshot view of NASA's Upper Atmosphere Research Satellite (UARS), which will fall to Earth in 2011, in this SPACE.com infographic.
CREDIT: Karl Tate, SPACE.com Contributor

View full size image

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Too Many Bosses, Too Few Leaders !

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Leadership among bosses

Review by ABBY WONG

Title: Too Many Bosses, Too Few Leaders: The Three Essential Principles You Need to Become an Extraordinary Leader

Author: Rajeev Peshawaria
Publisher: Free Press

THIS is a simple book yet extremely powerful. The title sounds more like a clich but the author revitalises it, making it highly relevant, significantly thought provoking and incredibly resonating. A roadmap for managers of every level in any organisation, I urge you to read this book for its tremendous benefits.

Of all the bosses you have had in your career, how many do you consider truly great leaders? One might reply, “Not too many.” That is true for bosses these days are merely bosses, not leaders. And if you yourself are a boss, how do your subordinates rate you? One might be tempted to ask before attempting to answer, “Does it matter?” Well, it does. While bad leadership can go undetected, it can cost organisations tremendous amount of money. Again, are you a good leader?

You're not one if, according to author Rajeev Peshawaria, you don't take it upon yourself to dig deep and find solutions to the most pressing problems of our times.

Yet there is more than just devoting yourself. Leaders who achieve exceptional results despite the toughest challenges are able to do one simple thing to harness human energy toward a shared purpose. This book is about how to discover, or rediscover if you have lost it in the face of adversity, the energy you have once had to fuel yourself as well as many others to create sustainable collective success.



Again, if you think that is hackneyed, don't. Peshawaria, having spent more than twenty years working alongside top executives at some of the biggest corporations in the world, knows precisely what makes and how to be an effective leader. His journey to great leadership is personal and the steps he outlines are simple and intuitive which allows continuing prowess that separates tomorrow's leaders from today's bosses.

Leadership is a journey so are the rewards. Because leaders are in it for a long haul, the first step leaders must take is to identify and be clearly convinced of the underlying purpose or values of their leadership endeavour. The emphasis Peshawaria places on this initial commitment is profound because great leadership indeed cannot be pursued without laser-sharp purpose and values. Furthermore, it is this purpose that defines one's leadership identity and gives the lasting energy to stay on course. But if your purpose is to lead a life enriched by everyday material pleasures gained through your positions, then this book is not for you. You are better off remaining a boss.

Do something different in your life for each economic trajectory, which we most likely will soon witness when technology takes us onto a whole new horizon in solving worldwide problems, gives leadership opportunity. If you have a purpose, like Howard Schultz (chairman and CEO of Starbucks) did back in the 90s, you will have a shot to lead a life enriched by not only materialistic rewards but also satisfaction and meaning.

The same goes to Jeff Bezos of Amazon.com. Bezos had a purpose. He then found a channel (a firm), defined the brain (story) of the business, wired it with bones (strategy) that is well understood by everyone in the firm, and aligned it with nerves (cultures). On the outset, brains, bones and nerves maybe the only framework required to energise a business.

Underpinning each pillar of the framework, however, are threads that weave successes and needles that prick them. As a way to demonstrate management of these threads and needles, Peshawaria provides from a large pool of stories on leadership and managerial experiences. Drawn from the little-known philanthropic organisation called Acumen to the highly regarded Goldman Sachs, lessons on characters, fortitude, values, processes and practices abound.

They, too, are simple but by no means simplistic. They are not detailed but in no way less insightful. They help provoke ideas that leaders can use in managing their firms and finding their own paths to great leadership.

Are leaders born or made? Peshawaria thinks while some may be born, leaders can certainly be made as well if they have the will to lead. But do all leaders understand good leadership? No? Read this book.

 Related articles

• Rajeev Peshawaria, What Are You Reading? (zanesafrit.typepad.com)
• How a true leader spends his time (holykaw.alltop.com)

Currency War & Exchange Rates Tension!

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Tension over exchange rates

WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

Amid heightened fears over eurozone sovereign debt risks and increasing concerns about the health of the United States and eurozone economies, worried investors have flocked to the safety of haven currencies, especially the Swiss franc, and gold.

While investors and speculators have since moved aggressively to buy gold, the switch from being large sellers to buying by a number of emerging nation's central banks (Mexico, Russia, South Korea and Thailand) has helped propel the price of gold more than 25% higher this year, hitting a record US$1,920 a troy ounce earlier this month. At a time of high uncertainty in the face of the International Monetary Fund's (IMF) latest gloomy forecast on global growth, few central banks relish the prospect of a flood of international cash pushing their currencies higher.

Massive over-valuation of their currencies poses an acute threat to their economic well-being, and carries the risk of deflation.

The Swiss franc

Switzerland's national currency, the CHF, should be used to speculative attacks by now. So much so in the 1970s, the Swiss National Bank (SNB) was forced to impose negative interest rates on foreign investors (who have to pay banks to accept their CHF deposits).

And, it has been true in recent years, with the CHF rising by 43% against the euro since the start of 2010 until mid-August this year. There does not seem to be an alternative to the CHF as a safe haven at the moment.

With what's going on in the United States, eurozone and Japan, investors have lost faith in the world's two other haven currencies: US dollar (USD) and the yen.

This reflects the Federal Reserves' ultra-loose policy stance and the political fiscal impasse in the United States which have scared away investments from the dollar. The prospect that Tokyo might once again intervene to limit the yen's strength has deterred speculators from betting on further gains from it. To be fair, the CHF has also benefitted from recent signs that the Swiss economy, thanks in large part to its close ties to a resurgent Germany, is thriving.

But enough is enough. SNB made a surprising announcement on Sept 6 that it would buy foreign currencies in “unlimited quantities” to combat a huge over-valuation of the CHF, and keep the franc-euro exchange rate above 1.20 with the “utmost determination.”

On Aug 9, the CHF reached a new record, touching near parity against the euro from 1.25 at the start of the year, while the USD sank to almost CHF 0.70 (from 0.93). The impact so far has been positive: the euro rose 8% on that day and the 1.20 franc level had since stabilised. It was a gamble.

Of course, SNB had intervened before in 2009 and 2010, but in a limited way at a time when the euro was far stronger. But this time, with the nation's economy buckling under the currency's massive over-valuation, the risks of doing nothing were far greater. In July last year, following a chequered history of frustrated attempts, SNB vowed it would not intervene again. By then, the central bank was already awash with foreign currency reserves. Worse, the CHF value of these reserves plunged as the currency strengthened. In 2010, SNB recorded a loss of CHF20 billion, and a further CHF10 billion in 1H'11. As a result, SNB came under severe political pressure for not paying the expected dividend. But exporters also demanded further intervention to stop the continuing appreciation.

This time, SNB is up against a stubborn euro-debt crisis which just won't go away. True, recent efforts have been credible. Indeed, the 1.20 francs looks defensible, even though the CHF remains over-valued. Fair value appears to be closer to 1.30-1.40. But inflation is low; still, the risk of asset-price bubbles remains. What's worrisome is SNB acted alone. For the European Central Bank (ECB), the danger lies in SNB's eventual purchases of higher quality German and French eurozone government bonds with the intervention receipts, countering the ECB's own intervention in the bond market to help weaker members of Europe's monetary union, including Italy and Spain.



This causes the spread between the yields of these bonds to widen, and pile on further pressure on peripheral economies. Furthermore, unlimited Swiss buying of euro would push up its value, adding to deflationary pressures in the region.

The devil's trade-off

As I see it, the Swiss really has no other options. SNB has been attempting to drive down the CHF by intervening in the money markets but with little lasting effect. “The current massive over-valuation of the CHF poses an acute threat to the Swiss economy,” where exports accounted for 35% of its gross domestic product. The new policy would help exports and help job security. As of now, there is no support from Europe to drive the euro higher.

SNB is caught in the “devil's trade-off,” having to choose risking its balance sheet rather than risk “mounting unemployment, deflation and economic damage.” The move is bound to cause distortions and tension over exchange rates globally.

New haven: the Nokkie'

SNB's new policy stance has sent ripples through currency markets. In Europe, it drove the Norwegian krone (Nokkie) to an eight-year high against the euro as investors sought out alternative safe havens. Since money funds must have a minimum exposure in Europe and, with most European currencies discredited and quality bonds yielding next to nothing, the Nokkie became a principal beneficiary. It offers 3% return for three-month money-market holdings.

Elsewhere, the Swedish krona also gained ground, rising to its strongest level against the euro since June after its central bank left its key interest rates unchanged, while signalling that the rate will only creep up. What's worrisome is that if there is continuing upward pressure on the Nokkie or the krona, their central banks would act, if needed with taxes and exchange controls. With interest rates at or near zero and fiscal policy exhausted or ruled out politically in the most advanced nations, currencies remain one of the only policy tools left.

At a time of high uncertainty, investors are looking for havens. Apart from gold and some real assets, few countries would welcome fresh inflows which can stir to over-value currencies. Like it or not, speculative capital will still find China and Indonesia particularly attractive.

Yen resists the pressure 

SNB's placement of a “cap” to weaken the CHF has encouraged risk-adverse investors who sought comfort in the franc to turn to the yen instead. So far, the yen has stayed below its record high reached in mid-August. But it remains well above the exporters' comfort level.

Indeed, the Bank of Japan (BoJ) has signalled its readiness to ease policy to help as global growth falters. But so far, the authorities are happy just monitoring and indications are they will resist pressure to be as bold as the Swiss, for three main reasons: (i) unlike to CHF, the yen is not deemed to be particularly strong at this time it's roughly in line with its 30-year average; (ii) unlike SNB, Japan is expected to respect the G-7's commitment to market determined exchange rates; and (iii) Japan's economy is five times the size of Switzerland and the yen trading volume makes defending a pre-set rate in the global markets well-nigh impractical.

Still, they have done so on three occasions over the past 12 months: a record 4.51 trillion yen sell-off on Aug 9 (surpassing the previous daily record of 2.13 trillion yen from Sept 2010).

The operation briefly pushed the USD to 80.25 yen (from 77.1 yen) but the effects quickly waned and the dollar fell back to a record low of 75.9 yen on Aug 19. But, I gather the Finance Ministry needs to meet three conditions for intervention: (a) the yen/USD rate has to be volatile; (b) a simultaneous easing by BoJ; and (c) intervention restricted to one day only.

Given these constraints, it is no wonder MOF has failed to arrest the yen's underlying trend. In the end, I think the Japanese has learnt to live with it unlike the Swiss who has the motivation and means to resist a strong currency.

Reprieve for the yuan 

I sense one of the first casualties of the failing global economic expansion is renewed pressure to further appreciate the yuan. For China, August was a good month to adjust strong exports, high inflation and intense international pressure. As a result, the yuan appreciated against the USD by more than 11%, up from an average of about 5% in the first seven months of the year. However, the surge had begun to fade in the first half of September.

But with the United States and eurozone economic outlook teetering in gloom, China's latest manufacturing performance had also weakened, reflecting falling overseas demand.

This makes imposing additional currency pressure on exporters a no-go. Meanwhile, inflation has stabilised. Crude oil and imported food prices have declined, reducing inflationary pressure and the incentive to further appreciate the yuan. Looks like September provided a period of some relief. But, make no mistake, the pressure is still there. The fading global recovery may have papered over the cracks. Pressure won't grind to a halt.

Central banks instinctively try to ward-off massive capital flows appreciating their currencies. There are similarities between what's happening today, highlighted by the recent defensive move by SNB, and the tension over exchange rates at last year-end. It's an exercise in pushing the problem next door.

This can be viewed as a consequence of recent Japanese action (Tokyo's repeated intervention to sell yen). It threatens to start a chain of responses where every central bank tries to weaken its currency in the face of poor global economic prospects and growing uncertainty. So far, the tension has not risen to anything like last year's level. But with rising political pressure provoking resistance to currency appreciation, the potential for a fresh outbreak remains real. The Brazilian Finance Minister just repeated his warning last year that continuing loose US monetary policies could stoke a currency war.

Growing stress

With the euro under growing stress from sovereign debt problems, the market's focus is turning back to Japan (prompting a new plan to deal with a strong yen), to non-eurozone nations (Norway, Denmark, Sweden and possibly the United Kingdom) and on to Asia (already the ringgit, rupiah, baht and won are coming under pressure on concerns over uncertainty and capital flight). Similarly, Brazil's recent actions to limit currency appreciation highlights the dilemma faced by fast growing economies (Turkey, Chile and Russia) since allowing currency appreciation limits domestic overheating but also undermines competitiveness.

This low level currency war between emerging and advanced economies had further unsettled financial markets.

Given the weak economic outlook, most governments would prefer to see their currencies weaken to help exports. The risk, as in the 1930s, is not just “beggar-thy-neighbour” devaluations but resort to a wide range of trade barriers as well. Globally co-ordinated policies under G-20 are preferred. But that's easier said than done.

So, it is timely for the IMF's September “World Economic Outlook” to warn of “severe repercussions” to the global economy as the United States and eurozone could face recession and a “lost decade” of growth (a replay of Japan in the 90s) unless nations revamped economic policies. For the United States, this means less reliance on debt and putting its fiscal house in order.

For the eurozone, firm resolution of the debt crisis, including strengthening its banking system. For China, increased reliance on domestic demand. And, for Brazil, cooling an over-heating economy. This weekend, the G-20 is expected to take-up global efforts to rebalance the world overwhelmed by heightened risks to growth and the deepening debt crisis. Focus is expected on the role of exchange rates in rebalancing growth, piling more pressure on China's yuan.

Frankly, IMF meetings and G-20 gatherings don't have a track record of getting things done. I don't expect anything different this time. The outlook just doesn't look good.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting public interest. Feedback is most welcome; email: starbizweek@thestar.com.my.

A crisis of capitalism

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The financial problems plaguing Europe and Italy are not home-grown. They are part of a global attack on labour

• Riccardo Bellofiore guardian.co.uk

Riot police during a clash with anti-austerity protesters in Rome last week. Photograph: Reuters

History repeats itself, Marx wrote, first as tragedy, then as farce. If you wonder how it might repeat itself the third time, look at Italy: a country where the most effective opposition to government are – literally – comedians, and where the prime minister himself is a joke. This has distorted most analysis of the country's economical and political situation, as if Italy's problem is just its PM, distracted by sex and trials.

To understand the true nature of the Italian crisis we need to look at it in a wider European context. The limits of the eurozone are well known: it has a "single currency" that isn't backed by political sovereignty, a central bank that doesn't act as lender of last resort or finance government borrowing, and no significant European public budget. The flaws of the ECB's obsessive anti-inflationary stand, and its propensity to raise the interest rate whatever the cause of price rises, are also plain to see. And Germany's tendency to profit from southern Europe's deficit while simultaneously imposing austerity budgets on those countries pertains more to psychiatry than economics.

That said, the European crisis is not a home-grown one, the sovereign debt crisis is not truly a public debt crisis, and Italy's crisis is not Italian-born. German neo-mercantilism induced stagnation in Europe, which survived thanks to US-driven exports. When "privatised Keynesianism" – mixing institutional funds, capital asset inflation and consumer debt (a model exported from the US and UK to Italy, Spain and Ireland among others) – exploded, European growth imploded.



Private debt crisis in disguse

The sovereign debt crisis is thus the private debt crisis in disguise. Deficits are not of the "good" kind (planned to produce use values, and self-dissolving through qualitative development), but of the "bad" kind (induced by real stagnation or saving finance).

The problem has been the unwillingness to refinance first Greece, then Ireland, then Portugal. Their share in the euro area public debt to GDP ratio is ridiculously low: cancelling the debt would have been less painful.

The crisis came because "markets" and rating agencies saw the stupidity of European leaders, who were ineffective when it came to rescuing indebted countries, and who introduced self-defeating austerity programmes. Fear produced a ballooning of the interest rate spread. The sharp decrease in the already very low Italian GDP growth rate (1.3% in 2010, 0.1% in the first quarter of 2011) and the dramatic rise in interest rates paved the way to Italy's current nightmare.

Italy's economy does have serious failings, but they are structural, long-standing ones. They date from the mid-1960s, and they resulted in the continuous decrease in both labour productivity and the growth rate. Capitalists answered workers' struggles with a kind of investment strike – through the intensification of labour rather than innovation. Industrial sectors disappeared; technology was imported; public enterprises were privatised. Mid-sized Italian companies profited from international exports, but they were dependent on outside-generated growth. Public debt was a means to assist a de-industrialising economy.

 Fatal blow

The fatal blow came with the policies of flexibility (that is, casualisation) of labour, which led to a collapse of labour productivity. For a while, this led to full under-employment in the centre-north. The crisis is revealing the hidden truth, and the drama of Italian unemployment and further casualisation is only just beginning as the impact of increasing regressive taxes and savage cuts is felt.

Default plus exit from the euro will not help. In 1992, Italy left the European monetary system and witnessed a huge devaluation: the structural problems deepened, and workers' conditions deteriorated. This time, Italy leaving the euro would mean the end of monetary union, and a dramatic broadening of the European and world crisis.

The crisis can be overcome only by dealing at once with the European crisis in order to stop the domino effect. One suggestion has come from Yanis Varoufakis and Stuart Holland: eurobonds not only as financial rescue but also as finance to a wave of investments.

However, this crisis is not just a financial crisis, but a capitalist crisis: it is part of an attack on labour. From this point of view, a New Deal should be part of a wider programme of the European left, who should push for a socialisation of investment, banks as public utilities, the intervention of the state as direct provider of employment, and capital controls.

It is not (yet) Marx. It is Hyman P Minsky. Unfortunately what's really missing in Europe is not the money to finance debt; it is internationalism. Only European struggles can resist austerity and deliver decent reform.

Related articles

• European banks head towards another meltdown (telegraph.co.uk)
• IMF: Banks need more cash to hedge against euro crisis (telegraph.co.uk)
• Italy's Berlusconi survives test with arrest vote (seattlepi.com)