The International Monetary Fund managing director Christine Lagarde warned that greater resilience would be needed from the world’s emerging economies to handle China’s slowdown, warning the road ahead could be “somewhat bumpy”.

The IMF chief also cautioned that global growth this year would be “likely weaker” than previously anticipated, less than two months after the IMF cut its global forecast for 2015 to 3.3%.

Emerging markets from Indonesia to Brazil have been bruised by the slowdown in the world’s second largest economy.

Edward Niedermeyer  writes:  Fiat Chrysler would normally be prey for a larger competitor. But its audacious chief executive officer, Sergio Marchionne, has seen a flash of weakness in the eye of one of the great whales, and seems intent on attempting to reverse the natural order by forcing a takeover of General Motors. What once seemed to be Marchionne’s search for a love match has revealed itself to be far more about fear than attraction. With his advances to just about every automaker in the industry going unanswered, Marchionne has settled on the target that shows the most managerial weakness.

Though General Motors is far bigger and more profitable than Fiat Chrysler, its plodding leadership has revealed a lack of strategic creativity and tendency to buckle to shareholder pressure. Forget the industrial logic that Marchionne says makes a GM-FCA tie-up inevitable; he is pursuing the much larger firm because he thinks he can get away with it. This weakness starts at the top: After her initial laudatory tour of the press as the industry’s first female CEO, GM’s Mary Barra has shrunk from the public eye as GM’s massive quality and safety crisis has overtaken its image. Unable to defuse concerns about a GM culture that she has never been outside of, and battered by opportunistic investors seeking to raid GM’s giant post-bailout cash pile, Barra’s media appearances have been markedly controlled by her PR people. Sensing weakness, Marchionne has asked repeatedly to meet with Barra about a merger, yet her handlers have refused to let the two CEOs into the same room.

Through sheer audacity, Marchionne the squid may yet bag his whale, yet the struggle is likely send both firms sinking to the depths, teeth and tentacles wrapped in a deadly embrace.

William Pesek writes:  In recent years, China’s relationship with the U.S. has resembled nothing so much as a hostage situation. Beijing’s enormous holdings of US treasuries  gave it immense leverage over Washington, which lived in perpetual fear of China choosing to not finance any new debt, or sell off its current holdings.

Beijing has been trimming its holdings of Treasuries in recent months in order to prop up the yuan. Over the past year, its overall foreign-exchange reserves have fallen by about $315 billion to $3.7 trillion. But the scale of these sales have been relatively modest. And there are at least three reasons that a more massive Chinese selloff of Treasuries is exceedingly unlikely.

The first reason is China’s rickety economy. In the current economic environment, as Chinese growth sputters and traders begin to short Shanghai stocks. China needs every growth engine it can muster. And that means enticing U.S. consumers to spend by ensuring their government enjoys low interest rates.

The second reason China will hesitate to sell off Treasuries is Japan. Beijing knows that if it ends its unique relationship with the U.S., Tokyo would gladly step in to take its place. With about $1.2 trillion of Treasuries, Japan is already only marginally behind China in the dollar-leverage department. And two of Prime Minister Abe’s signature policies are especially relevant in this context: keeping the yen weak and Barack Obama happy.

If Abe’s economic revival program has experienced any measure of success, it’s because of the yen’s 30 percent drop since late 2012. That’s why Abe will want to make sure the yen doesn’t rise on a trade-weighted basis against the recently devalued yuan. If that means offsetting Chinese dollar sales, then so be it.

Abe has been as compliant a Japanese partner as Washington has encountered in decades.  In the wake of a major Chinese selloff, Abe is sure to oblige any request from Washington that Tokyo do something to save the U.S. bond market.

The third reason that China won’t sell Treasuries is there’s nothing else it can buy. It turns out the Pentagon was right in 2012 when it concluded “China has few attractive options for investing the bulk of its large foreign exchange holdings out of U.S. Treasury securities.”

Ed Stoddard writes:  The poaching of rhinos has risen in South Africa’s Kruger National Park this year but is on the decline elsewhere in the country, Environment Minister Edna Molewa said on Sunday.

The Kruger Park, South Africa’s main tourist draw, is on the frontlines of a surge in rhino poaching for the animal’s horn to meet demand in countries such as Vietnam, where it is a coveted ingredient in traditional medicine.

A record 1,215 rhino were poached in South Africa last year, almost triple the 448 killed in 2011.

Molewa said at a news briefing that as of Aug 27, 749 rhinos were known to have been illicitly killed in South Africa so far in 2015, 544 of them in Kruger. At this time last year, the nationwide total was 716, with 459 killed in Kruger.

Molewa said Kruger was still the epicentre of the crisis.

“Kruger remains a magnet because of numbers. You won’t walk 2 kms in Kruger without coming across a rhino,” she said.

Kruger has the largest concentration of rhinos on the planet, with an estimated 8,000 to 9,000 white rhinos, about half of South Africa’s population of the species.

South Africa has more than 80 percent of the world’s rhino population with about 18,000 white rhinos and close to 2,000 black rhinos.

Fundisile Mketeni, the chief executive of South African National Parks, also pointed to Kruger’s size and topography as attractions to poachers. Kruger is the size of Israel and much of its terrain is remote, making it tough to police.

The park also shares a 450 km (300 mile) border with Mozambique, from where many of the Kruger poachers come.

While incidents are falling elsewhere, the rhino war in Kruger is escalating.

So far in 2015, Molewa said there has been a “27 percent increase in poachers entering the Kruger National Park to attempt to kill rhino.”

There were 12 active poacher groups at any given time somewhere on the 2 million hectares of the Kruger National Park.

Arrests of suspected rhino poachers in the park are also up to 138 so far in 2015 compared to 81 in the same period last year.

US Trade deal could limit poaching..The pact would, for the first time, integrate species conservation with trade access by requiring the 12 countries that sign it to adopt conservation laws, or live up to commitments they’ve already made yet routinely ignore.

The TPP would also require international law enforcement agencies, customs and border patrol officials, and wildlife inspectors to coordinate more effectively. If an African country informs Vietnam that one of its citizens has paid a poacher for rhino horns, for example, the Vietnamese can’t ignore the tip-off.

The Economist writes:   The ability to make stockmarkets boomerang is usually reserved for central bankers. But on August 24th, hours into a global market rout that had started in Asia and was sweeping its way through Europe and then America, Tim Cook, the boss of Apple, turned his hand to it. “I can tell you that we have continued to experience strong growth for our business in China through July and August,” he wrote in an e-mail to CNBC, a financial-news channel. “I continue to believe that China represents an unprecedented opportunity over the long term.”

By the time Mr Cook felt it necessary to opine on the state of the world’s second-biggest economy, plenty had started to question its prospects. Following weeks of wobbling, the Shanghai stock exchange had just cratered. A government once credited with near-magical powers to browbeat its economy into growth looked to have misplaced its wand. Suspicions abounded that a decades-long era of superlative—if recently softening—economic expansion might be coming to an end. So the news that Chinese consumers were still in the mood for new iPhones and whizzy watches did more to assuage nerves than reams of official pronouncements from Beijing ever could.

Apple shares reclaimed the $66 billion they had lost; the Dow Jones blue-chip index, having opened down a calamitous 1,000 points, rebounded. But that was a precursor for days of volatility. Many markets around the world crossed the line into “correction” territory, having fallen more than 10% from recent peaks.   China’s Market Impacts

Image by Claudio Munoz

John Cassidy writes: Promoters of higher education have long emphasized its role in meeting civic needs.

In the fast-growing for-profit college sector, which now accounts for more than ten per cent of all students, vocational degrees are the norm.

No idea has had more influence on education policy than the notion that colleges teach their students specific, marketable skills, which they can use to get a good job. Economists refer to this as the “human capital” theory of education, and for the past twenty or thirty years it has gone largely unchallenged.

So what purpose does college really serve for students and employers?

And, while college graduates are still doing a lot better than nongraduates, some studies show that the earnings gap has stopped growing. The figures need careful parsing. If you lump college graduates in with people with advanced degrees, the picture looks brighter.

Many students and their families extend themselves to pay for a college education out of fear of falling into the low-wage economy. That’s perfectly understandable. But how sound an investment is it? One way to figure this out is to treat a college degree like a stock or a bond and compare the cost of obtaining one with the accumulated returns that it generates over the years. (In this case, the returns come in the form of wages over and above those earned by people who don’t hold degrees.)

So what purpose does college really serve for students and employers? Before the human-capital theory became so popular, there was another view of higher education—as, in part, a filter, or screening device, that sorted individuals according to their aptitudes and conveyed this information to businesses and other hiring institutions. By completing a four-year degree, students could signal to potential employers that they had a certain level of cognitive competence and could carry out assigned tasks and work in a group setting. But a college education didn’t necessarily imbue students with specific work skills that employers needed, or make them more productive.
Kenneth Arrow, one of the giants of twentieth-century economics, came up with this account, and if you take it seriously you can’t assume that it’s always a good thing to persuade more people to go to college. If almost everybody has a college degree, getting one doesn’t differentiate you from the pack. To get the job you want, you might have to go to a fancy (and expensive) college, or get a higher degree. Education turns into an arms race, which primarily benefits the arms manufacturers—in this case, colleges and universities.

Increasingly, the competition for jobs is taking place in areas of the labor market where college graduates didn’t previously tend to compete. As Beaudry, Green, and Sand put it, “having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less educated workers for the Barista or clerical job.”
Obtaining a vocational degree or certificate is one strategy that many students employ to make themselves attractive to employers, and, on the face of it, this seems sensible. If you’d like to be a radiology technician, shouldn’t you get a B.A. in radiology? If you want to run a bakery, why not apply to Kansas State and sign up for that major in Bakery Science?

Perhaps the strongest argument for caring about higher education is that it can increase social mobility, regardless of whether the human-capital theory or the signalling theory is correct. A recent study by researchers at the Federal Reserve Bank of San Francisco showed that children who are born into households in the poorest fifth of the income distribution are six times as likely to reach the top fifth if they graduate from college. As the economist Lawrence Summers and two colleagues showed in a recent simulation, even if we magically summoned up college degrees for a tenth of all the working-age American men who don’t have them—by historical standards, a big boost in college-graduation rates—we’d scarcely change the existing concentration of income at the very top of the earnings distribution, where C.E.O.s and hedge-fund managers live.

Ukraine’s finance minister said a “win-win” deal for restructuring $18 billion of debt had been agreed with a group of its largest creditors. Poroshenko is looking to meet all the conditions of the emergency assistance from the International Monetary Fund.  Debt restructuring should save the country $15.3 billion through 2018, while attempting to end the worst recession of anywhere across Africa, Europe and the Middle East. The government will not have to make interest or principal payments until 2019.

The deal also includes a so-called GDP growth warrant that will kick in from 2021 through 2040.

Ukraine’s US-born finance minister Natalie Jaresko said she nailed the debt deal that pulled the ex-Soviet country back from the brink.

Ukraine agreed to raise its coupon rates to 7.75 per cent from 7.2 per cent while the lenders accepted slightly longer repayment terms.

German Chancellor Angela Merkel and French President Francois Hollande – co-sponsors of an increasingly tattered six-month-old truce – reaffirmed their support for the deal.

Ukraine started negotiations requesting a 40% haircut on the creditors’ holdings.

Franklin Templeton and three other global financial titans led to a 20-percent write-down or “haircut” to the face value of the bonds they hold, a deal that saves Ukraine 11.5 billion. The EU is brokering negotiations between Moscow and Kiev to secure gas supplies for the upcoming winter, but there has been little progress so far.

Still unresolved is the fate of the $3 billion Russian loan, given to prop up the regime of former president Viktor Yanukovych before he was ousted past year.

EU President Juncker  gave assurances on highly anticipated plans to lift visa requirements for citizens of Ukraine visiting the EU, and said he expects the commission to give a green light by the end of the year.

Moscow insists that the debt be treated as a sovereign obligation, while Kiev is treating it as a commercial debt.

The IMF is skirting the issue of actual cash to help relieve Greece’s debt burden.

A form of debt restructuring rather than outright forgiveness should enable Greece to handle its “unviable” debt burden, the head of the International Monetary Fund was quoted as telling a Swiss newspaper.

The IMF has yet to make clear if it will participate in the third 86-billion-euro ($96 billion) international bailout that Greece signed up to in early August, having argued in favor of a partial writedown of a debt burden it considers unsustainable in its current form.

Greece’s euro zone creditors, notably Germany, have ruled out a writedown but are willing to consider other forms of restructuring such as a lengthening maturities.

Asked about those differences, IMF Managing Director Christine Lagarde told Saturday’s edition of Le Temps: “The debate on cancelling the debt has never been open I don’t think it is necessary to open it if things go well…

“We are talking about extending maturities, reducing rates, (making) exemptions for a certain period of time. We are not speaking about cancelling debt.”

Lagarde has said the IMF will make a decision by October.

Megan McArdle writes: Venezuela seems to be hovering on the edge of tipping into hyperinflation. Or perhaps it has already fallen into the abyss. 

Using those rates, economist Steve Hanke recently wrote that annual cost-of-living increases are running at about 722 percent. To put that in some perspective, it means that a $400 monthly grocery bill would climb to $2,888 in a year. That may not approach the legendary status of Hungary’s postwar inflation, which reached 41.9 quadrillion percent in a single month, but it’s devastating for savers, or for people like pensioners whose incomes consist of fixed payments. It’s also pretty bad for the economy.

Or is it Seigniorage! That’s the fancy name for the profit a government makes by printing bills and minting coins. If you can buy more goods and services with the cash you made than it cost you to make it, you have essentially collected a stealthy sort of tax on the people who take the money from you and give you valuable stuff in exchange.

In general, seigniorage revenue is trivial — indeed, it costs the U.S. government more to make nickels and pennies than the coins themselves are worth. But even with higher-value bills, the revenues pale in comparison to, say, the income tax. 

Governments can try to jack up the amount of seigniorage revenue by stealthily inflating the currency. Basically, they exploit an information asymmetry between them and the people they trade the money to: The government knows how much money there is, and its citizens don’t. So they’ll probably accept fewer units of currency than they would if they knew the government was going to print extra money and thus cause prices to rise again.

But this is a terrible way to make money, which is why governments normally don’t resort to this one clever trick for raising government spending without raising taxes. 

The core thing to understand about inflation as a policy tool is that in general, steady-state inflation doesn’t do you any good; what you need is accelerating inflation.

Once inflation starts to accelerate, it’s kind of hard to stop because people also start pricing the acceleration into their expectations. Hyperinflation has all sorts of bad knock-on effects: It hurts your capital base and makes people unwilling to plan for the future because they have no idea what their money will be worth. But the supreme irony is that after a certain point, the government actually starts losing money.

Part of the answer is that in the early days, inflating does make the government a little more money, and the point at which it starts to lose money is also the point at which the freight train is traveling 120 miles an hour. 

The larger answer is that this is the end game of Chavismo. For about a decade, some sectors of the left hoped that Hugo Chavez represented an alternative to the neoliberal consensus on economic policy. 

In real terms, the price of a barrel of oil is barely higher than it was in August 2000, but Venezuela is producing something like 700,000 fewer barrels each day. Policies that looked great on the way up — more revenue and more social spending — became disastrous on the way down as the population was hit with the double whammy of lower production and lower prices.

Now falling oil prices are crushing government revenues at exactly the time the country most needs money to help the people who are suffering great misery as the oil cash drains out of their economy. In the beginning, printing money may have looked like the best of a lot of bad options. By the time it became clear that the country was not fudging its way out of a temporary hole, but making a bad situation worse, it was committed to a course that is extremely painful to reverse.

Venezuela may be able to pull back from the edge, though it can only do so with great pain. Or it may end up in a hyperinflationary spiral, which will ultimately mean even greater pain. I don’t envy the decisions it will have to make. Or the millions of Venezuelan people who will have to live with them.