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Daily Mail, London, Alex Brummer column
(Daily Mail (London) (KRT) Via Thomson Dialog NewsEdge) Jan. 12--Warnings that the United States may be heading for the economic rocks are starting to come through fast and furious. The latest person to join the gloom camp is Raghuram Rajan, the top economist at the International Monetary Fund.
In remarks posted on the IMF's website, Rajan notes that America is running a current account deficit of 6.25pc of national wealth, or 1.5pc of the total output of the world.
To finance this huge shortfall it is pulling in 70pc of the world's savings, much of it from Asia. So we have the curious position of the world's poor financing the over-consumption of the earth's richest nation.
Rajan notes that the response to an investment slowdown in the Anglo-Saxon countries has been to expand budgets and lower interest rates. In the United States and Britain easy credit has fuelled housing booms.
The IMF man believes that two changes are needed. Consumption has to give way to investment, and, to reduce current account imbalances, demand has to shift from deficit nations like our own -- Britain had a record trade deficit of 6bn in November -- to nations running surpluses like China.
The risk is that the adjustment will be "abrupt," taking away a major support of world growth. In plain language, the housing market in the US will crash and the shockwaves, in the shape of recession, will be felt around the world.
John Snow, the American Treasury Secretary, is doing his best to allay such fears, promising to shrink the US budget deficit by containing spending.
Quite difficult when a new study by Nobel prize winner Joseph Stiglitz places the cost of the Iraq war at $1.184bn. And that is a moderate scenario! Moreover, Snow brushes to one side fears that China may be preparing to shift some of its reserves out of US dollars. "I'm confident the US will continue to attract the capital it needs," he suggests, noting the solid returns on US assets.
It is Snow's job to allay suspicions that America's credit and debt mountains pose a threat to global stability. Indeed, as Rajan notes, China can play a great role in helping to smooth change by allowing the renminbi to climb against the dollar.
But the overriding worry is that the Bush government is failing to impose enough discipline on its financial affairs and it will all end in tears.
THE ALACRITY WITH WHICH THE BOARD of the Peninsular & Oriental Steamship Navigation Co and its advisers bit off the hand of Dubai's DP World when they rolled up with a 443p offer is looking foolish. A bid in the hand is no doubt worth a great deal more than those in the bush. However one has to seriously question why Sir John Parker, advised by Citibank and Rothschild, felt so strongly about the Dubai offer that he even consented to a break fee of 33m of shareholders" money.
We are now starting to find out that the DP World offer was inadequate given the paucity of port and other shipping assets around the world.
In latest trading, P&O -- which I hold -- soared 6pc to a shade under 500p, way above the second bid from the Singapore governmentcontrolled Temasek Holdings.
The truth of the matter is that both bidders are effectively controlled by states with bottomless reserves and no one can be sure where the take-out price will end up.
Broker Dresdner Kleinwort believes the winning offer will be in the 500p-550p region, more than a pound above where Parker and a deck heavy with knights of the realm ran up the flag of surrender.
Directors should have reflected more carefully on the price of abandoning 170 years ruling the high seas.
THE RECORD ON INSURANCE MERGERS in Britain is not good. NatWest's attempted merger with Legal and General in 1999 failed to find favour with the stock market. The 1996 deal between Royal Insurance and Sun Alliance is widely regarded as one of the biggest value destroyers in British corporate history and Prudential's 2001 attempt to take over American General, ended in ignominy when AIG came in and blew it out of the water.
So the idea of bringing together Britain's two largest insurers Aviva and the Prudential is unlikely to be greeted with unalloyed joy. Having only recently put together a new top team and restated the group's growth strategy, the Pru is unlikely to want to sell itself just yet. But if it does, Aviva might look an attractive partner after the success which Richard Harvey and his team have had in bedding down Norwich Union and more recently the AA.
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