Pentagon plans to shrink US military; 'This is not a recovery -- it is a bubble and it will burst'; Global dividends 'pass $1 trn'; India's Modi haunts Silicon Valley

1 Pentagon plans to shrink US military (BBC) Defence Secretary Chuck Hagel has unveiled plans to shrink the US Army to its smallest size since before the US entered World War Two. Outlining his budget plan, the Pentagon chief proposed trimming the active-duty Army to 440,000-450,000 personnel, down from 520,000 currently. The plan requires approval from Congress, which could change it. The US military is under pressure to downsize after two costly foreign wars.

Mr Hagel said at the Pentagon: "There are difficult decisions ahead. That is the reality we're living with." Noting the current US Army strength, Mr Hagel added: "Since we are no longer sizing the force for prolonged stability operations, an Army of this size is larger than required to meet the demands of our defence strategy." Reaction to the proposal was swift, with Republican members warning such cuts could hurt military readiness.

The proposed Army staffing levels would be the lowest since 1940, when the US was mobilising for WWII and employed 267,000 active-duty soldiers. The US entered that conflict in 1941 following the Japanese attack on Pearl Harbor. By the end of World War Two, there were 8.2 million active-duty US Army members, according to figures provided by the Pentagon. 

The figure peaked at 1.6 million both during the Korean War, in 1952, and during the Vietnam War, in 1968. The number was 482,000 in 2000, a year before the attacks of 11 September 2001. After those attacks, the force peaked at 566,000 in 2010.

http://www.bbc.co.uk/news/world-us-canada-26326969

2 'This is not a recovery, it is a bubble to burst' (Ha-Joon Chang in The Guardian) According to the stock market, the UK economy is in a boom. Not just any old boom, but a historic one. On 28 October 2013, the FTSE 100 index hit 6,734, breaching the 6,730 level achieved at the height of the economic boom before the 2008 global financial crisis, in October 2007.

The current levels of share prices are extraordinary considering the UK economy has not yet recovered the ground lost since the 2008 crash. The situation is even more worrying in the US. In March 2013, the Standard & Poor 500 stock market index reached the highest ever level, despite the fact that the country's per capita income had not yet recovered to its 2007 level. Since then, the index has risen about 20%, although the US per capita income has not increased even by 2% during the same period. This is definitely the biggest stock market bubble in modern history.

During the dotcom bubble, the predominant view was that the new information technology was about to completely revolutionise our economies for good. Given this, it was argued, stock markets would keep rising (possibly forever) and reach unprecedented levels. Few stock market investors really believe in these stories. They are aware that share prices are high mainly because of the huge amount of money sloshing around thanks to quantitative easing (QE), not because of the strength of the underlying real economy.

The result, unfortunately, is that stock market bubbles of historic proportion are developing in the US and the UK, the two most important stock markets in the world, threatening to create yet another financial crash. One obvious way of dealing with these bubbles is to take the excessive liquidity that is inflating them out of the system through a combination of tighter monetary policy and better financial regulation against stock market speculation. Of course, the danger here is that these policies may prick the bubble and create a mess.

In the longer run, however, the best way to deal with these bubbles is to revive the real economy. This will require a more sustainable increase in consumption based on rising wages rather than debts, greater productive investments that will expand the economy's ability to produce, and the introduction of financial regulation that will make banks lend more to productive enterprises than to consumers. Unfortunately, these are exactly the things that the current policymakers in the US and the UK don't want to do. We are heading for trouble.

http://www.theguardian.com/commentisfree/2014/feb/24/recovery-bubble-crash-uk-us-investors

3 Global dividends 'pass $ 1trn' (BBC) The dividends paid to shareholders around the world reached $1.03 trillion last year, according to research by Henderson Global Investors. The City investment management firm said worldwide dividend payments grew very slowly in 2013, at just 2.8%. But there has been a 43% rise in the value of global dividends since 2009.

Shareholder payouts have risen fastest in the past four years in the emerging markets, including China, though they have slowed down recently. A third of all dividends were paid by firms listed on US stock markets, with European-listed companies in second place.

The contribution of dividends to the total returns available to shareholders has always been very important. But that elementary fact was often overlooked in the past, when the booming stock markets in the 1980s and 1990s gave the false impression that rising share prices were all that mattered to investors.

Henderson pointed out that 9% of all dividends paid globally came from just 10 enormous companies in the oil, banking and telecoms industries, and that the world's top 20 dividend payers provided 16% of all shareholder payouts.

http://www.bbc.co.uk/news/business-26321338

4 India's Modi haunts Silicon Valley (Kajal Basu in Khaleej Times) The spectre of Narendra Modi, India’s strongest prime ministerial contender, is flitting around California’s 17th congressional district (including Silicon Valley), which became the first majority Asian-American district in 2012. 

Asian Americans comprise 49.7 per cent of the district’s population of 702,904, of whom 37.8 per cent are of voting age. And it is overwhelmingly Democrat. In the fray are two anti-Modi Democrats: Sitting Rep Mike Honda, 72, a charismatic Congressman since 2001 and the bettors’ choice; and Rohit ‘Ro’ Khanna, 37, a charismatic maverick with a huge war chest.

There is also the Republican, Vanila Mathur Singh, 43, an untested anaesthesiologist/clinical associate professor at Stanford. Singh is pro-Modi (or was, until January 29, when she stated her “respect” for “the decisions made by the US State Department”).

In the 2012 assembly election, the Bharatiya Janata Party had polled 47.85 per cent of the 27,164,074 votes in Gujarat. In actuality, the differential was greater: About 28.58 per cent didn’t vote, reducing the BJP’s actual tally to 34.44 per cent, a far cry from a majority.

The paradox is that Modi was blocked by the Bush administration in 2005; today, the Good Old Party wants him in. And Democrats Honda and Khanna want him kept out. The Indian general election in April-May 2014 might soon render the issue academic, though were Modi to win, no US administration can afford to keep him in the outcast company of Sudanese President Omar Hassan Al Bashir and Vitaly Zakharchenko, Ukraine’s former minister of the interior.

http://khaleejtimes.com/kt-article-display-1.asp?xfile=data/opinion/2014/February/opinion_February42.xml&section=opinion