Global Economy 2013
Mitch Joel on bitcoins
Bitcoin is a peer-to-peer universal, digital currency platform that has been getting a tremendous amount of attention is the past few months. This virtual money holds no physical presence (it’s all zeroes and ones) and is both used to pay for goods and services as well as being traded (much like any other commodity) in the online sphere. In the past short while, it has been gaining in both popularity and value. Currently, the value of one Bitcoin is over one hundred dollars and, to add some perspective to this, in early March there were trading below $35 and as of this past January, they were trading at under $15. Last week, GigaOm published a very comprehensive article about Bitcoin titled, Yes, you should care about Bitcoin, and here’s why, that explained the currency as such: “Bitcoin is to state-issued currencies – often referred to as fiat money – as P2P file-sharing is to traditional broadcast media. There is no centralized source for it that can be controlled or moderated or regulated. It is difficult if not impossible to track from the outside… It is important to understand that, while fiat money is issued and controlled by governments and their laws, Bitcoin is generated and controlled by algorithm. While governments can always print more money according to their needs, there will only ever be just under 21 million Bitcoins (right now there are around 11 million), because that’s how the algorithm works.” Beyond the logistical, technical and security issues that are happening in parallel with Bitcoin’s meteoric rise, it is abundantly clear that this is a first generation digital currency experimentation and that we can expect our world to see a lot more of this. What if Facebook, Google and others took on the business of borderless digital currency? Think about the current race for digital wallets and decentralized online banking opportunities. What if the real business of Facebook or Google was to become the next-generation of Bitcoin? Facebook Credits already exist (remember Linden dollars in Second Life?). Currently credits in online platforms are still centralized and controlled, but what if Facebook gave their billion-plus community their own currency system and then extended it outward – one that wasn’t or couldn’t be affected by local governments, markets and the like? What if one dollar for me was the same monetary value as one dollar for (in whatever country you’re living in)? Clearly, there are many economic and legal hurdles that these companies are going to have to solve and jump through to create their own legally recognized currency, but Bitcoin is pointing to a fascinating new world where banks and our money – as we have known it to date – is about to become even more digitized and globalized. It’s something all of us need to be watching much more closely, because it makes perfect sense. (April 8)
Traders Losing $1 Million Build EU Case for Bitcoin Regulation
(Bloomberg) Thefts from digital wallets have exceeded $1 million in some cases and traders aren’t protected against losses if their virtual exchange collapses, the European Banking Authority said today in a report warning consumers about the risks of cybermoney.
Bitcoins Fail Currency Test in Scandinavia’s Richest Nation
Bitcoins were dealt a blow in Norway as the government of Scandinavia’s richest nation said the virtual currency doesn’t qualify as real money.
Norway will instead treat Bitcoins as an asset and charge a capital gains tax, after Germany in August said it will impose a levy on the virtual currency.
Bitcoin Startup Gets $25 Million in Andreessen-Led Funding Round
(Bloomberg) Coinbase Inc., a provider of online Bitcoin accounts and transaction services, raised $25 million in funding led by Andreessen Horowitz.
Existing investors Union Square Ventures and Ribbit Capital are also participating in the second round, which brings the total funding to $31 million, the San Francisco-based company said. Coinbase has about 600,000 users who buy, sell and store the virtual currency online.
Venture capitalists have been seeking opportunities to participate in Bitcoin as a payments system. Tim Draper has invested in mobile-payments provider Gliph Inc., and BitPay Inc. has raised capital from Founders Fund and other investors. As more people flock to Bitcoins as an investment and use them to buy goods and services online, users will need virtual wallets, software tools and merchants that will accept the digital money.
China Bans Financial Companies From Bitcoin Transactions
(Bloomberg) China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country.
Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People’s Bank of China said it isn’t a currency with “real meaning” and doesn’t have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said.
How Many Tulips Can You Buy With One Bitcoin?
We investigate with charts and a live exchange rate.
(The Atlantic)…It’s the current bitcoin-tulip exchange rate. Based off the weighted price of bitcoin from the currency exchange website Mt. Gox, and updated every 15 minutes, it calculates just how many tulips you could buy with one bitcoin.
As of publication, the number was in the 700s.
It’s a silly way of getting at a serious question: Is bitcoin a bubble? The digital currency has now been the subject of a giddy U.S. Senate hearing, a Federal Reserve economist’s advisory letter, and oodles of bemused press. Since briefly losing value when law enforcement shut down the online black market Silk Road in October, the currency’s value has almost unstoppably climbed. A single bitcoin—little more than $13 a year ago—now costs over $1000.
“All I can say is that the crash is going to be great,” proclaimed technology writer Adrian Chen in the New York Times last week. “Bitcoin is too dependent on speculative mania to be of practical use as a currency.”
Economic history — When did globalisation start?
(The Economist) Early economists would certainly have been familiar with the general concept that markets and people around the world were becoming more integrated over time. Although Adam Smith himself never used the word, globalisation is a key theme in the Wealth of Nations. His description of economic development has as its underlying principle the integration of markets over time. As the division of labour enables output to expand, the search for specialisation expands trade, and gradually, brings communities from disparate parts of the world together. The trend is nearly as old as civilisation. Primitive divisions of labour, between “hunters” and “shepherds”, grew as villages and trading networks expanded to include wider specialisations. Eventually armourers to craft bows and arrows, carpenters to build houses, and seamstress to make clothing all appeared as specialist artisans, trading their wares for food produced by the hunters and shepherds. As villages, towns, countries and continents started trading goods that they were efficient at making for ones they were not, markets became more integrated, as specialisation and trade increased. This process that Smith describes starts to sound rather like “globalisation”, even if it was more limited in geographical area than what most people think of the term today. (23 September)
Reuven Brenner – The force of finance (video) (Economist Intelligence Unit) Key issues for the global economy in 2013 Given austerity in the euro zone, a slowdown in China and a host of other problems, 2012 was a challenging year for many businesses. What is in store in 2013? My analysts and I have compiled a list of major themes likely to occupy executives, business planners and policymakers in the year ahead. We find that global growth prospects should brighten a little—thanks in part to China’s recovery. Investors’ risk appetite may also continue to improve, and we believe that structural reforms in a number of economies could rise up the agenda this year. However, the risks to global growth will remain substantial, and include further fiscal brinksmanship in the US and the possibility of renewed financial turbulence in the euro zone.
The Economist Debate: Will the world economy be in better shape in 2013 than in 2012? Defending the motion — Anatole Kaletsky, Co-chairman and chief economist, GaveKal Dragonomics There are three broad arguments for optimism about 2013: long-term trends in globalisation and technology; short-term cyclical forces; and expectations among businesses and investors. Against the motion — Mohamed El-Erian, CEO, PIMCO I desperately want 2013 to be better for the global economy than 2012. And there are some encouraging signs. Unfortunately, they are too few to make a meaningful improvement likely.
Prospects for the Global Economy in 2013 (Foreign Affairs) Moody’s Chief Economist Mark Zandi cites three reasons to be bullish about the U.S. economy: a housing revival, the end of de-leveraging, and a healthy corporate sector that will be ready to invest in 2013. CFR’s A. Michael Spence also thinks that 2013 augurs better for the world economy, but cautions that lagging employment and income inequality will hamper a robust recovery. In contrast, CFR’s Robert A. Kahn cautions that Europe’s debt crisis is far from being solved and that without growth, “we are likely to see Europe again at the brink.” The Century Foundation’s Mark Thoma believes that a reevaluation of monetary policy in the United States, and possibly the Bank of England, could help lower the European Central Bank’s guard against inflation in the coming months. Carnegie’s Yukon Huang predicts that even as the currency war between China and the United States recedes, the battle over foreign investment and technology transfer policies will continue to escalate in the coming months.
Feeding the Bubble: Is the Next Crash Brewing?
(Spiegel) Central banks around the world are pumping trillions into the economy. The goal is to stimulate growth, but their actions are also driving up prices in the real estate and equities markets. The question is no longer whether there will be a crash, but when.
Brett House: Emerging Markets Back in the Box
(Global Brief) They wasted time and opportunity during the boom. Now, as their fortunes wane, they must change the world
The financial press has sounded the death knell for emerging markets. Quite a turnabout: 2013 was to have been the first year in which emerging markets would account for more than half of global growth, and for more than half of worldwide production. What happened?
The destinies of emerging markets are only partially under their control. Both their rapid ascent and their recent wobble have been driven by external forces. First, China’s high savings rates, intensive investment and years of double-digit growth rates drove a commodity boom from the early 2000s onward. Chinese demand for raw materials was so strong that it sustained commodity prices even as industrialized countries slipped into crisis in 2008. Emerging commodity exporters benefited greatly.
The Uncertain Future of the World Economy
(IPS- Columnist Service via Other News) – Five years into the crisis, growth in the U.S. is still below potential, Europe is struggling to pull out of recession and major emerging economies are slowing rapidly after an initial resilience during 2010-2011.
Longer-term prospects are not much brighter largely because the key problems that gave rise to the most serious post-war crisis – income inequalities, external imbalances and financial fragilities – remain unabated and have indeed been aggravated.
The world economy suffers from an under-consumption bias because of low and declining share of wages in the gross domestic product (GDP) in all major advanced economies including the U.S., Germany and Japan, as well as China.
Still, until 2008-2009 the threat of global deflation was avoided thanks to consumption binges and property booms driven by credit and asset bubbles, particularly in the U.S. and the European periphery.
The crisis has not removed but reallocated global trade imbalances.
Americans win Nobel prize for work on predicting markets
(Reuters) – Three American scientists won the 2013 economics Nobel prize on Monday for research that has improved the forecasting of long term asset prices, a hot topic since the collapse of the U.S. housing market bubble prompted a global financial meltdown.
“There is no way to predict the price of stocks and bonds over the next few days or weeks,” The Royal Swedish Academy of Sciences said in awarding the 8 million crown ($1.25 million) prize to Eugene Fama, Lars Peter Hansen and Robert Shiller.
“But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years. These findings … were made and analyzed by this year’s Laureates,” the academy said.
Peter Englund, professor of banking at the Stockholm School of economics and member of the prize committee, said their research had deeply influenced modern finance.
“The most obvious application, that follows on from Fama’s research, is the insight that you can’t beat the market. It is impossible to prove that equity analysis is worth the money,” he told Reuters.
“That has led to the development of index funds and that most households actually put their savings in index funds.”
In addition, the behavior of asset prices are key to decisions such as savings or house buying, and therefore play a vital role national economic policy, the academy said.
World Bank undergoes necessary surgery
(Reuters) The World Bank’s cost cuts are just what the doctor ordered. The global lender’s medically trained boss, Jim Yong Kim, is proving his management chops with $400-million (U.S.) in savings and a sharper focus on efficiency. The moves could help speed loans while keeping rivals at bay. That’s a prescription for growth at the bank as well as in client countries.
Much is riding on Mr. Kim’s success. The World Bank is still often the best source of financing for development projects. It often brings expertise that few other lenders can match. The bank also insists on safeguards that can reduce the risk of corruption or environmental damage.
Of course, turning the World Bank around is no easy task. With a staff of 10,000 and 188 member nations, Mr. Kim will have to win broad support for his ideas. But his approach offers the greatest chance of success.
Breaking BRIC piggy banks
(The Economist) Even countries that have looked prosperous over the last few years now seem a bit less healthy. Most strikingly, rising production costs in Brazil and China have lowered competitiveness and growth rates over the last few years. And since 2011 their economies have become increasingly reliant on deficit spending for stability. Including quasi-fiscal measures, such as local-government financing and off-budget funds, deficits in 2013 surged to 3% of GDP in Brazil and as high as 10% in China.
Further threats to fiscal stability in emerging markets are growing. Tapering—or even the threat of it—may deliver a shock to government bond yields and deficits. As problems in India this summer have shown, increased borrowing costs can quickly cause problems in an economy with little fiscal or monetary headroom. Although the decision of the Federal Reserve last month to delay tapering has given emerging markets time to breath, this will not last forever. Emerging-world governments might do well to use the respite to make progress towards balancing their budgets, in order to reduce dependence on cheap foreign financing.
China tells US to avoid debt crisis for sake of global economy
A senior Chinese official has warned that the “clock is ticking” to avoid a US default that could hurt China’s interests and the global economy.
China, the US’s largest creditor, is “naturally concerned about developments in the US fiscal cliff”, vice finance minister Zhu Guangyao said.
Goldman Sachs — Reform school for bankers
The world’s leading investment bank puts itself under the spotlight
(The Economist) Critics of the firm, of which there are many, would doubtless guffaw at this theatre. Yet internal training sessions such as the one that The Economist recently attended (with the knowledge of the session’s moderator but without the knowledge of participants) do shed light on the efforts being made by the firm to burnish a badly tarnished reputation.
The firm’s introspection is real; and whatever clients’ misgivings, the bank heads the M&A league tables. But it remains committed to a business model that is designed to put it in difficult situations.(Print edition of October 5th)
FBI claims largest Bitcoin seizure after arrest of alleged Silk Road founder
(The Guardian) Silk Road used Bitcoins to let users pay for drugs – but now police have arrested Ross William Ulbricht, who they say is ‘Dread Pirate Roberts’, the owner and operator of secret online marketplace
US Government Shutdown Over Obamacare Has Serious Implications For Global Economic Recovery
(HuffPost UK) Once again Europeans may be forgiven for looking on baffled at the bizarre maneuverings of Washington’s political class this week as the US government careers towards a shutdown. The Affordable Care Act (ACA), better known as Obamacare, … despite being signed into law more than three years ago, the legislation, a major part of which is due to be finally implemented this week, threatens to derail not only the US government but provides an ominous portent for the US debt ceiling debate, with severe implications for Britain, the eurozone and beyond.
Maersk calls bottom of trade cycle
(Financial Times) The world’s biggest container shipping line by market share has called the bottom of the global trade cycle, predicting that the world will come out of the funk induced by the Eurozone crisis in the coming two years.
The recession in many worldwide economies that followed the 2008 crisis caused trade to collapse around the world. The continuing recession in Europe and slowdown in China and other big developing economies this year have led the World Trade Organisation and others to downgrade their expectations for global trade this year and next. The WTO expects global trade to grow by just 2.5 per cent this year.
Robert Reich: Happy Anniversary Lehman Brothers, and What We Haven’t Learned About Wall Street Over the Past Five Years
The fact is, the giant Wall Street banks are ungovernable — too big to fail, too big to jail, too big to curtail.
While attention is focused on Syria, the gambling addiction of Wall Street’s biggest banks is more dangerous than ever.
Five years ago this September, Lehman Brothers went bankrupt, and the Street hurtled toward the worst financial crisis in eighty years. Yet the biggest Wall Street banks are far larger now than they were then. And the Dodd-Frank rules designed to stop them from betting with the insured deposits of ordinary savers are still on the drawing boards — courtesy of the banks’ lobbying prowess. The so-called Volcker Rule has yet to see the light of day.
To be sure, the banks’ balance sheets are better than they were five years ago. The banks have raised lots of capital and written off many bad loans. (Their risk-weighted capital ratio is now about 60 percent higher than before the crisis.)
But they’re back to too many of their old habits. [Author’s emphasis]
‘If China Breathes Easier, the World Will Too’
China: A Vital Partner in Combating Climate Change
(World Bank) President Jim Yong Kim says the World Bank Group will expand cooperation with China in the areas of climate change, clean energy, reduction of traffic jams and air pollution, and improved flood risk management.
Failure On All Fronts: No Progress from G-20 Leaders
(Spiegel) The G-20 summit ended worse than expected on Friday — with acrimony, division and name-calling over Syria. The conference, which was originally conceived as an economic forum, also failed to deliver results on global recovery.
From The Independent: Third World pays price of tax avoidance
Third World countries are in danger of being left behind by new moves to crack down on tax-dodging multinationals, sources at the G20 have conceded. Under plans put to the St Petersburg summit, developed countries will forge ahead with automatic data-sharing systems designed to expose cheating corporations.
But there is concern that developing countries will miss out on the benefits if the systems rely on complex and expensive infrastructure.
Around 2 per cent of the national incomes of developing countries is being lost as companies spirit profits away to tax havens – equivalent to almost three times as much money as the Third World gets in aid.
Results of the G20 summit: Joint statement by European Commission President Barroso and European Council President Van Rompuy
With global recovery remaining fragile, all leaders agreed that the G20’s urgent priority is to promote growth and jobs, particularly for the young unemployed. There was a true sense of unity and common purpose, which also extends to the need of ensuring sustainable and sound public finances. There is a clear recognition that growth based on debt is not sustainable. We adopted the Saint Petersburg Action Plan for Growth and Jobs with concrete contributions by all. We particularly welcome the very constructive discussions about the situation in the emerging economies and the willingness on all sides to engage in cooperative solutions and consider potential spillovers when conceiving and implementing national growth policies and to address structural issues in the concerned countries themselves.
This G20 summit cemented the global paradigm shift towards fairer taxation by endorsing the establishment of the automatic exchange of tax information. We are highly satisfied that this new standard will be implemented as from 2015 among G20 members, as the EU has pushed for. This and the endorsement of the OECD’s work on base erosion and profit shifting provide a powerful signal: The G20 are taking action to make sure that companies and individuals pay the taxes they are due and which are badly needed in these difficult times to invest in our future. Since long, the European Union has been and will continue to be at the forefront of this fight. In order to make it a success we will continue to provide our expertise and experience.
We also noted with satisfaction that the G20 made good progress in implementing its commitment to leave no market and no product unregulated and make the financial system more resilient, including through the consistent implementation of the Basel III capital rules. The G20 also showed its determination to move ahead with financial regulation, including by addressing the risks of shadow banking through strengthened oversight and regulation. All this is crucial to shield our citizens from paying the price of future financial crises. The European Union will continue to lead by example.
The G20 finally confirmed the importance of open, free and fair trade as an important source of growth and development. It is very good news that the G20 have reconfirmed their anti-protectionism commitment by extending the Toronto standstill clause to 2016 and stepping up efforts to roll back trade-restrictive measures as called for by the European Union. The strong call of the G20 for a successful outcome of the Bali WTO ministerial meeting in December, with trade facilitation at its core and some elements of agriculture and development issues would become a solid stepping stone towards a successful conclusion of the Doha Development Round and demonstrate the credibility and relevance of the WTO.”
The biggest threat to the global economy? The weather
(Globe & Mail) The Syrian crisis has triggered one of the biggest human mass movements in recent decades and there are bound to be others, certainly from war, but also from climate change as droughts and floods create uninhabitable areas. That’s the view of Munich Re, which has been researching climate change and global warming since the mid-1970s, decades before the terms entered the everyday lexicon.
In an interview in Munich, Peter Hoppe, the meteorologist who is head of the reinsurance giant’s georisk unit, said: “Climate change will create security problems because of the migrations it will create.”
Drought is emerging as one of the biggest natural hazards.
It has the potential to reshape human landscapes and entire economies, mostly for the worse but sometimes for the better. Canada is less prone to drought than the United States; it could emerge as the world’s emergency breadbasket if the warming trend extends the growing season and the amount of productive agricultural land.
Global Institutions after the Crisis
(Project Syndicate) The 2008 crisis highlighted the need for international cooperation to regulate finance and mitigate the effects of a crisis. Yet the global resources and instruments needed to manage (if not avert) the next crisis have not been secured. Instead, regions and countries are quietly finding their own ways to manage finance, create pooled emergency funds, and strengthen development finance – an outcome that heralds a more fragmented and decentralized set of regulatory regimes and a modest de-globalization of finance and aid.
Read more at http://www.project-syndicate.org/commentary/the-empty-promise-of-global-institutions-after-the-crisis-by-ngaire-woods#4yYueSzytEPI2aRA.99
G20 tax and transparency rules must work for everyone
If the voices of developing countries are not heard, the risk is that the OECD tax project will benefit only powerful economies
(The Guardian) If we compare G20 leaders’ latest statement on tax and transparency with what they were saying just two years ago, then the situation today looks encouraging.
G20 countries have finally accepted the need for major reforms on, which tax justice and anti-corruption groups have campaigned for years. They have endorsed the idea that countries should exchange information to catch evaders who hide their money outside the country where they owe tax.
This week’s G20 summit in St Petersburg, Russia, also acknowledged that “developing countries must reap the benefits of the G20 tax agenda”, including work to stop rampant tax dodging by multinationals.
So far, so good. The catch is that despite the warm words of the declaration, the reforms the G20 backed look likely to benefit only rich and emerging economies.
Harper stakes firm position on Syria, debt repayment at G20 summit
(CTV) Prime Minister Stephen Harper is taking a firm position on two controversial issues at this year’s G20 summit, with little hope of achieving a wider consensus with his fellow leaders on either front.
With two cabinet ministers in tow to hammer home his messages, Harper made it clear that a military strike is necessary against Syria; and that countries should be setting hard targets for reducing their debts, as Canada is now doing. Brett House Interview with CTV on G20 Summit
Annan: G20 must offer global tax reforms for Africa to prosper
The Group of 20 needs to address tax reform on a worldwide scale if Africa is to benefit from its natural resources, writes Kofi Annan, former United Nations secretary-general. Key elements of tax reform include transfer mispricing, transparent beneficial ownership and bringing African tax authorities into alignment with reforms. “Africa has lost its tolerance for exploitation by the rest of the world. Africa’s people expect a fair share of the wealth beneath their soil and territorial waters,” Annan writes. The Guardian (London) (9/5)
Pressure mounts on Obama over Syria at G20 summit
(Reuters) – U.S. President Barack Obama faced growing pressure from world leaders not to launch military strikes in Syria on Thursday at a summit on the global economy that was eclipsed by the conflict.
The Group of 20 (G20) developed and developing economies met in St. Petersburg to try forge a united front on economic growth, trade, banking transparency and fighting tax evasion.
But the club that accounts for two thirds of the world’s population and 90 percent of its output is divided over issues ranging from the U.S. Federal Reserve’s decision to end its program of stimulus for the economy to the civil war in Syria. (5 September)
Expert networks: thriving in Asia, away from U.S. scrutiny
(Reuters) – Expert networks – a matchmaking service linking investors such as hedge funds with company insiders – are under scrutiny from regulators in the United States, but are expanding across Asia, where the market for corporate intelligence is less transparent.
(Daily Mail) Cargo ship sets off on historic journey through the Northeast Passage… but can ‘short-cut’ opened up by melting sea ice revolutionise shipping?
– The Yong Sheng set sail from Dalian bound for Rotterdam last week
– Hopes to navigate Arctic route over Russia within 35 days
– Traditional route via Suez Canal and the Mediterranean takes 48 days
– Melting sea ice means Arctic lanes are passable for longer periods
– Quicker transit times could dramatically reduce shipping costs
Arctic Methane Release Due To Climate Change Could Cost Global Economy $60 Trillion, Study Reports
(Reuters) – A release of methane in the Arctic could speed the melting of sea ice and climate change with a cost to the global economy of up to $60 trillion over coming decades, according to a paper published in the journal Nature.
Researchers at the University of Cambridge and Erasmus University in the Netherlands used economic modelling to calculate the consequences of a release of a 50-gigatonne reservoir of methane from thawing permafrost under the East Siberian Sea.
“The global impact of a warming Arctic is an economic time-bomb,” said Gail Whiteman, an author of the report and professor of sustainability, management and climate change at the Rotterdam School of Management, part of Erasmus University. (BBC) Arctic methane ‘time bomb’ could have huge economic costs
Release of offshore records draws worldwide response
ICIJ’s investigative series on offshore secrecy – which draws from a cache of 2.5 million secret records – has ignited reactions around the globe.
Since the initial release of stories by the ICIJ and its media partners across the world, public officials have issued statements, governments have launched investigations, and politicians and journalists have been debating the implications of the records and the reporting.
Among the latest reactions and responses:
The OECD has proposed what Bloomberg News describes as “a blueprint” for cracking down on tax-dodging strategies used by international companies such as Google, Apple and Yahoo. The new report by the Organization for Economic Cooperation and Development was released during a meeting in Moscow of the Group of 20 government finance and banking authorities. AFP reports the move, in part, follows widespread public anger over the “Offshore Leaks” revelations.
IMF slashes global growth forecasts
(Financial Times) Downgrades highlight gathering clouds over world economy as big developing countries start to weaken before developed markets have fully recovered
Global Shipping Contends with Oversupply Problems
(Stratfor) The global shipping industry is oversupplied. Because supply far exceeds demand, shipping rates have plummeted, as have the prices of ships. Some shipping companies have sought to capitalize on this trend by purchasing newer, larger ships at lower prices so that they can remain price competitive. But unless demand rebounds by the time these ships become operational, the industry’s oversupply problem will only worsen.
It is unclear whether the global shipping industry will normalize before these new ships enter the market. Demand could rise as the global economy recovers, or the supply of ships could somehow fall. But the economy’s recovery could just as well be slower than anticipated. Several factors could prevent the industry from righting itself, not the least of which are inaccurate forecasts of future market behavior. In fact, the current state of global shipping was caused in part by incorrect predictions of continued growth prior to the 2008 financial crisis. In any case, continued poor performance and a sluggish global economy could eventually force the shipping industry to restructure.
(Council on Foreign Relations) The G8 leaders met in the U.K. during June 17–18, 2013, for their [39th] summit. They released a joint communiqué, which focuses on foreign policy challenges, particularly in Syria. They also produced an Open Data Charter and the Lough Erne Declaration on private enterprise responsibilities.
G8 summit and tax evasion: what’s really been achieved?
Progress at the summit itself was virtually non-existent, with certain G8 countries – like the US – putting up strong resistance to change
(The Guardian) … A declaration of G8 principles was a windy document that committed the west’s leading industrial nations to do little specific.
The G8 Action Plan was similarly weak. The G8 said information on the beneficial ownership of companies could be achieved through central registries. Plenty of wriggle room, there. …
So what has changed, if anything? Here, the good news is that the G8 has agreed a broad set of principles. The bad news is that the 10-point plan doesn’t actually commit the countries to doing very much. Real progress in tightening up the global regime is going to be painfully slow.
Issue Guide: G8 Summit 2013
(Council on Foreign Relations) Trade liberalization, tax reform, and transparency in development are expected to dominate the agenda at the 2013 G8 summit. While some critics have called this agenda unambitious–previous summits have focused on eradicating poverty or resolving the financial crisis, for example–CFR’s Stewart Patrick commends its “manageable” scope. The June gathering is meant to emulate the original G8 summit in Rambouillet, France, in 1975, where leaders candidly discussed the economic problems of the day. Despite the intimate atmosphere, however, UK prime minister David Cameron faces formidable obstacles in building consensus among fellow heads of state, and the official agenda may be overshadowed by the ongoing civil war in Syria and the politically fraught transatlantic trade deal, among other urgent concerns.
Just in time for the G8 meeting
Secret tax-haven names released to public
Journalism group anticipates crowd-sourcing of leaked offshore list will yield revelations
The Austerity Pandemic
(Project Syndicate) At this year’s International Monetary Fund/World Bank spring meetings in Washington, DC, the IMF urged European countries to ease their austerity policies and focus on investment, marking a shift from past rhetoric. But, in the corridors of those two multilateral institutions, there was talk of double standards.
A review of policy discussions from 314 IMF country reports published since 2010 – part of a comprehensive update on the global shift toward austerity – shows that many adjustment measures are most prevalent in developing countries, where citizens are especially vulnerable to austerity’s economic and social consequences.
UN’s Calvin joins Branson, Robinson to launch Plan B for Business
United Nations Foundation CEO Kathy Calvin is joining former Irish President Mary Robinson, Richard Branson and other leaders to launch Plan B for Business, which will look to reduce unemployment and inequality and promote more sustainable use of natural resources. BusinessGreen (U.K.) (6/13), The Huffington Post (6/12)
G8 leaders braced for battle on evasion
(Financial Times) It has been billed by the British government as “a turning point” in the battle against tax evasion and avoidance. When world leaders gather in Northern Ireland next week, they will set out to end tax havens and stem the illicit flow of funds out of some of the world’s poorest countries.
The agenda – focused on the ‘three Ts” of trade, tax and transparency – is both technically and politically challenging. …
A fourth unofficial “T” will be tensions, which are particularly apparent over moves to promote transparency around the ownership of companies.
Improving U.S., rebounding Japan can’t stop OECD cutting world growth forecast
(Reuters) – The recession-hit euro zone will fall further behind a generally improving United States and a rebounding Japan this year, the OECD said on Wednesday, cutting its global growth forecasts.
In its twice-yearly Economic Outlook, the Organisation for Economic Cooperation and Development forecast the world economy would grow 3.1 percent this year before accelerating to 4 percent in 2014.
US charges Liberty Reserve over $6bn money laundering scam
Incorporated in Costa Rica in 2006, Liberty Reserve is alleged by US authorities to have been set up as a bank-payment processor designed to help users conduct illegal transactions anonymously and launder the proceeds of their crimes.
It had more than one million users worldwide, who conducted approximately 55 million transactions – virtually all of which were illegal – and laundered more than $6 billion in suspected proceeds of crimes including credit card fraud, identity theft, computer hacking, child pornography and narcotics trafficking.
Anatole Kaletsky: The many interpretations of Ben Bernanke
(Reuters blogs) On Wednesday in Washington, Federal Reserve Chairman Ben Bernanke presented congressional testimony that repeated, virtually word for word, statements about U.S. monetary policy he has been making since last September. … The reaction to this tediously familiar statement, which was followed by publication of the equally repetitive minutes of the last Fed policy meeting, was some of the wildest gyrations seen in the world’s financial markets for months … The speculation spread to Tokyo Thursday. Markets there had their biggest one-day swoon since the 2011 tsunami. By the end of the day, tens of billions of dollars in Tokyo and New York had probably been redistributed among speculators who had put different interpretations on Bernanke’s words.
U.S. authorities seize accounts of major Bitcoin operator
(Thomson Reuters Accelus) – U.S. authorities have seized two accounts linked to a major operator in the booming Bitcoin digital currency market, Tokyo-based exchange Mt. Gox. The move may prevent the firm from facilitating the purchase and sale of Bitcoins in U.S. dollars at a time when use of the currency and its value has mushroomed.
… Both Mutum Sigillum and Mt. Gox, which says it handles 80 percent of Bitcoin trading, are owned by Mark Karpeles, the affidavit states.
Our friend Nick comments: Mount Gox is said to account for 80% of all Bitcoin trading; so this is a serious blow to the concept. Meanwhile in Canada Joseph David, the owner of Virtex, a Calgary-based Bitcoin exchange, got a surprise when RBC informed him it no longer wanted its business & closed out its account. So, while Bitcoin portrays itself as an alternate currency operating outside the banking system, its Achilles heel, for the time being at least, is that it still needs the banking system to enable current or aspiring Bitcoin owners to get into the game, or cash in their ‘chips’ .
How economic dogma has thrown the world out of balance
(Globe & Mail) Karl Moore interviews Henry Mintzberg asking: Is business too powerful today?
To the brainy, the spoils
As the world grows more confusing, demand for clever consultants is booming
McKinseyites are said to be “vainies” (who come and lecture clients on the McKinsey way). BCG people are “brainies” (who spout academic theory). And the “Bainies” have a reputation for throwing bodies at delivering quick bottom-line results for clients.
(The Economist) Big trends that befuddle clients mean big money for clever consultants. Barack Obama’s gazillion-page health reform has boosted health-care consulting; firms would rather pay up than read the blasted thing. The Dodd-Frank financial reform has done the same for financial-sector work. Energy and technology are hot, too.
Jeffrey Sachs: Time to End the Tax Havens
(HuffPost) … a new analysis by a group of international organizations throws this system into sharp relief. Figures from the Enough Food for Everyone IF campaign — supported by almost 200 organizations including Actionaid, Christian Aid, Oxfam, and Save the Children — are revealing more about the extent of these havens. There are trillions of dollars tied up in the tax havens, with massive worldwide evasion of tax payments that undermines the budgets of rich and poor countries alike. The IF campaign makes a basic point: poverty can be fought, and austerity overcome, IF taxes are properly paid by those who owe them. Ending the tax havens and their financial secrecy is therefore urgent.
Low interest rates hinder investment: ADB President
(Emerging Markets) In an exclusive interview the Asian Development Bank’s new president Takehiko Nakao discusses the challenges the bank faces
… The Manila-based ADB recognizes, however, that it “cannot be too ambitious about doing everything by itself”, and that it must maximize its efforts to tap public- and private-sector sources of co-financing, the newly installed head of the institution said.
Jeffrey Sachs: The Global Economy’s Corporate Crime Wave
(Project Syndicate) The world is drowning in corporate fraud, and the problems are probably greatest in rich countries – those with supposedly “good governance.” Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. Money talks, and it is corrupting politics and markets all over the world. … Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.
Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits.
The Monarchs of Money
The world’s central banks have printed unimaginable amounts of money in recent years. Neil Macdonald explores what this means for the global economy and for your financial well-being.
Billionaires Suffer as Tax Shelters Go Away
(Buusiness Week) It’s hard out there for a tax-sheltering billionaire. Bloomberg News reports today that some of the wealthiest people in the world are scrambling to rearrange their financial affairs as international tax shelters become less accommodating.
• Liechtenstein began in 2009 to require its financial institutions to gather details about the beneficial (i.e. real) owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein.
• Singapore will make laundering of profits from tax evasion a crime under a law taking effect on July 1.
• Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.
Central Banks Load Up on Equities
(Bloomberg) Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.
The Secret of the Seven Sisters
A four-part series that reveals how a secret pact formed a cartel that controls the world’s oil.
(Al Jazeera) Throughout the region’s modern history, since the discovery of oil, the Seven Sisters have sought to control the balance of power.
They have supported monarchies in Iran and Saudi Arabia, opposed the creation of OPEC, profiting from the Iran-Iraq war, leading to the ultimate destruction of Saddam Hussein and Iraq.
The Seven Sisters were always present, and almost always came out on top.
Since that notorious meeting at Achnacarry Castle on August 28, 1928, they have never ceased to plot, to plan and to scheme.
The Secret World of Gold – a documentary exploring the power and politics of gold, a precious metal with more allure and fascination than any other. Valued for its permanence, beauty and scarcity, people will lie, cheat, steal and kill in the name of gold. (CBC Doc Zone, 18 April)
Growth, not austerity, key to ending the crisis: Lagarde
The economic recovery is a ‘three-speed’ one; policies to boost growth everywhere are needed, IMF Managing Director Christine Lagarde says
(Emerging Markets) The world economy has gone through the worst stages of the crisis and is now recovering at an uneven pace, with some countries growing strongly, others being on the mend and others still mired in recession, Lagarde said during a news conference at the opening of the International Monetary Fund’s spring meetings.
“The three-speed recovery is not the healthiest we can think of. What we need is a full-speed global economy,” Lagarde said.
She said that while monetary easing was important for the eurozone to be able to get out of recession, the smooth transmission of monetary policy to ensure that lower interest rates are translated into lower borrowing rates for small and medium size companies was even more important.
“Of all the major central banks in the world, the ECB is the only one who clearly still has room for maneuver. It is up to them to decide … when to lower interest rates,” Lagarde said.
The global recovery falters
The prospects for a synchronised mid-year bounce in growth among the major economies are weakening. Signs are emerging that the recession in the euro zone has further to run and China’s recovery from its 2012 slowdown may not materialise as quickly as hoped. As a result, my team of global analysts and I trimmed a number of our growth forecasts, including those for the euro zone, China, Brazil and Russia. There are still some bright spots in the global economy, with the US in particular holding up relatively well despite fiscal tightening. International operating conditions remain difficult, but we still expect more of a pick-up next year. Economist Chief economist (18 April 2013
Capital Study: Chinese Investment in Europe Hits Record High
(Spiegel) Europe has become the world’s largest recipient of foreign investment by Chinese firms. While North America largely views them with suspicion, China’s state-owned corporations have been largely welcomed in a continent plagued by recession and in desperate need of cash.
Chinese state-owned companies are expanding their influence in Europe, investing more than $12.6 billion (€9.6 billion) in the Continent last year, according to a study by the Hong Kong-based private equity firm A Capital.
Steven Strauss: Nine Trust-Based Problems With Bitcoin
(HuffPost) Bitcoin seeks to be an electronic cash (currency) system that doesn’t rely on trust. Paradoxically, Bitcoin requires a trust-based ecosystem. … [replacing] trust in legal systems, institutions and procedures, with a system where we must:
— Trust the willingness of counterparties to accept Bitcoin as currency for payment — a huge leap of faith. Purchasing Bitcoins means participation in a 100 percent trust-based system, without any legal mechanism to compel their acceptance. Conventional currencies rely not just on trust, but also on the force of law. … No country issues Bitcoins, and no government legally compels anyone to accept them as payment.
— Trust unregulated institutions with your personal bank information just to purchase Bitcoins. [See Mother Jones Bitcoin, Explained]
Virtual currencies — Mining digital gold
(The Economist) The story of Napster helps to explain the excitement about Bitcoin, a digital currency, that is based on similar technology. In January a unit of Bitcoin cost around $15 (Bitcoins can be broken down to eight decimal places for small transactions). By the time The Economist went to press on April 11th, it had settled at $179, taking the value of all Bitcoins in circulation to $2 billion. Bitcoin has become one of the world’s hottest investments, a bubble inflated by social media, loose capital in search of the newest new thing and perhaps even by bank depositors unnerved by recent events in Cyprus. …
What makes Bitcoin different is that, unlike other online (and offline) currencies, it is neither created nor administered by a single authority such as a central bank.
Instead, “monetary policy” is determined by clever algorithms. New Bitcoins have to be “mined”, meaning users can acquire them by having their computers compete to solve complex mathematical problems (the winners get the virtual cash). The coins themselves are simply strings of numbers. They are thus a completely decentralised currency: a sort of digital gold.
Bitcoin’s inventor, Satoshi Nakamoto, is a mysterious hacker (or a group of hackers) who created it in 2009 and disappeared from the internet some time in 2010. The currency’s early adopters have tended to be tech-loving libertarians and gold bugs, determined to break free of government control.
Bitcoin: Bubble or Bank?
(CBC | The Current) The current banking crisis in Cyprus has led to increased interest and a rise in the value of the online currency Bitcoin. The virtual currency is seen as a safe haven for those wary about banks but skeptics worry Bitcoin is dangerous and can’t be sustained.
Fool’s Gold Bitcoin is a Ponzi scheme—the Internet’s favorite currency will collapse.
(Slate) As Farhad Manjoo relates in his entertaining (but dubious) foray into the market, bitcoin is the brainchild of a person (or persons) called Satoshi Nakamoto. Computer users can “mine” bitcoins by instructing their computers to solve complex problems generated by the bitcoin network. As more bitcoins are produced, the problems become more complex, requiring more computer power to solve them, and this limits the total number of bitcoins that can be created over time. Bitcoins are themselves simply strings of numbers. Once you own a bitcoin, you can transfer it to someone else (as a gift or to purchase goods) over the Internet. You can also convert it into dollars or other currencies on various exchanges. A central registry keeps track of where the bitcoins are located, so you cannot spend a single bitcoin over again by trying to transmit the identical code.
International Consortium Of Investigative Journalists Releases Secrecy For Sale: Inside The Global Offshore Money Maze.
Exposed are individuals associated with covert business dealings in the Cook Islands, the British Virgin Islands, Singapore, Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and many other places. U.S. doctors, Greek villagers, Russian executives, shady Wall Streeters, billionaires from Eastern Europe Indonesia, dealers of international arms and family members of dictators have been able to employ intricate offshore structures to own mansions, yachts, art and other assets while gaining tax advantages and anonymity “not available to average people,” the ICIJ points out. (International Business Times)
Secret Files Expose Offshore’s Global Impact
A cache of 2.5 million files has cracked open the secrets of more than 120,000 offshore companies and trusts, exposing hidden dealings of politicians, con men and the mega-rich the world over.
The secret records obtained by the International Consortium of Investigative Journalists lay bare the names behind covert companies and private trusts in the British Virgin Islands, the Cook Islands and other offshore hideaways.
The vast flow of offshore money — legal and illegal, personal and corporate — can roil economies and pit nations against each other.
Anti-corruption campaigners argue that offshore secrecy undermines law and order and forces average citizens to pay higher taxes to make up for revenues that vanish offshore. Studies have estimated that cross-border flows of global proceeds of financial crimes total between $1 trillion and $1.6 trillion a year.
The Brics are building a challenge to western economic supremacy
Brazil, Russia, India, China and South Africa, united by rejection of the neoliberal model, plan to create their own institutions
(The Guardian) The recent summit of the leaders of Brazil, Russia, India, China and South Africa (Brics) in Durban, South Africa, completed the group’s first cycle of summits, one in each of the five member countries. The summit declaration contained the usual pieties about “solidarity” between the Brics and their “shared goals”. However, unlike previous declarations, this one contained the first steps towards creating Brics institutions.
The most publicised among them, the Brics development bank, has been greeted with the usual western scepticism. Until recently, such scepticism tended to focus simply on comparative growth rates. With the Brics taking steps toward institutionalisation, there is a new element: can the Brics development bank really rival the IMF and the World Bank?
How high oil prices lead to financial collapse
Financial collapse is related to high oil prices, [Gail] Tverberg writes, and also to higher costs for other resources as we approach their limits.
(CSM) Resource limits are invisible, so most people don’t realize that we could possibility be approaching them. In fact, my analysis indicates resource limits are really financial limits, and in fact, we seem to be approaching those limits right now. …
In my view: The real danger is financial collapse, coming much earlier than a decline in oil supply. This collapse is related to high oil price, and also to higher costs for other resources as we approach limits (for example, desalination of water where water supply is a problem, and higher natural gas prices in much of the world).
What Are the BRICS Building?
This odd coalition was formed to shift the world economy. But is it becoming a political tool for autocrats?
(Slate) What is this thing called the BRICS? This week’s summit in the South African city of Durban produced grand plans for a new development bank and a new currency stabilization fund, though without many of the key specifics. It also heard ringing calls to “reform” the United Nations Security Council, aka the old global order, where BRICS members who don’t have permanent seats are eager to nail one down. (Russia and China made no promises.) BRICS might be, as a recent Kremlin “concept paper” asserted, “one of the most significant geopolitical events at the start of the new century.” But that remains to be seen.
Understandably, some of the fastest-growing economies in the world want to change an international financial architecture that is more than 60 years old. The BRICS represent about 45 percent of the world’s population and nearly a quarter of its gross domestic output (though China’s economy is bigger than the other four put together). Their main goal is getting a bigger say in how the world economy is run.
BRICS agree on creation of development bank
Brazil, Russia, India, China and South Africa, known as BRICS, agreed in principle to create the BRICS Development Bank to underwrite infrastructure projects but did not offer details on funding. Some South Africans are skeptical about the entity making a difference and are taking a wait-and-see approach, writes John Fraser. The Guardian (London) (3/28), Inter Press Service (3/28)
Will BRICS Change the Course of History?
(AllAfrica) Robert Wade, a professor of economics at the London School of Economics (LSE), has written a thoughtful article – ‘The Art of Power Maintenance: How Western States Keep the Lead in Global Institutions’- claiming that the West remains far more dominant in existing institutions than is generally thought, and there is little reason to believe that the South will be in charge anytime soon. ‘The common narrative about China and some other developing countries rising to challenge the United States and other major Western states turns out to be an exaggeration,’ he writes.
The article makes the reader wonder whether the West has succeeded in transforming today’s emerging powers into ‘useful idiots’, who are so proud that they are part of the G20 that they no longer defend developing countries’ interests. Seen from this perspective, the rise of the BRICS may have been a positive development for the West, now that the poor have lost powerful defendants in Brasília and Delhi, who are increasingly defending big-power interests. At the same time, emerging powers should not complain: It is natural that the West will do everything do hold on to its power – after all, even China is not fully committed towards permanently including Brazil and India in the UN Security Council.
BRICS As Potential Radical Shift or Just Mere Relocation of Power?
(AllAfrica) Although at this early stage the BRICS partnership raises more questions than answers, engaged citizens should help shape its agenda. The bloc may well turn out to be one of the single biggest developments of our era
The claim by the BRICS nations is that despite its 2001 origins in Goldman Sachs economist Jim O’Neill’s prediction, the group represents a potentially radical shift in the prevailing global political economic framework in which a few rich northern nations use their economic muscle to bully the world, and especially poor southern nations into submission.
The growing combined economic power of these five nations presents an alternative centre of power, they claim.
UN report shows middle-class boom in the global south
Countries in the “global south” are growing more prosperous and possess more than half of the world’s middle-class population, says the United Nation Development Programme’s 2013 Human Development report. Brazil, Chile and Mexico are leaders in policy, markets and innovation, while data from the report show that the U.S.’s ranking has been lowered because of inequality. The Washington Post/The Associated Press (3/14), The Guardian (London)/Datablog (3/14)
“The Tide Is Growing, But The System Does Not Realise It”
By Roberto Savio*,
(Other News) For those who think that “Occupy Wall Street”, the “Indignados” in Spain, the “World Social Forum ” and the hundreds manifestation of protest worldwide are expressions without concrete outcome, the result of the recent Swiss referendum (Sunday 3 March) on capping the salaries and bonuses of banks executives should make them think twice.
For Transatlantic Trade, This Time Is Different
Why the Latest U.S.-EU Trade Talks Are Likely to Succeed
(Foreign Affairs) In his State of the Union address two weeks ago, U.S. President Barack Obama announced that Washington would launch negotiations with the European Union this year on a comprehensive venture called the Transatlantic Trade and Investment Partnership (TTIP). Negotiators in the United States and Europe aspire to make the TTIP the most advanced economic agreement in the world, and any deal will likely go beyond the most basic aspect of free trade — namely, the elimination of tariffs. More broadly, Europe and the United States can be expected to align their regulations regarding manufacturing and services such as finance and telecommunications. The deal would also address new frontiers of economic growth, including the U.S. shale gas market and online intellectual property. They also hope to eliminate almost all barriers to foreign direct investment.
The elimination of tariffs alone, which average out to four percent on goods traded between the United States and Europe, could remove a $24 billion impediment to transatlantic trade. Beyond free trade, however, the real gains from the deal would come from regulatory cooperation. Transatlantic business would flourish, for example, if German cars that passed safety inspections in Stuttgart also met standards appropriate for U.S. drivers, if drugs and medical devices designed in one market could be sold to consumers in the other more quickly, and if smart-phone plugs built for both markets would be interoperable. In the highly regulated areas of advanced manufacturing and services, the backbone of the U.S. and European economies, streamlining business would give each side a huge boost in competitiveness.
The idea for such a deal is not new. Apart from the enlargement of NATO and the EU to formerly communist countries, no joint project has captured the imaginations of American and European leaders as much as the creation of a transatlantic marketplace. Together, the U.S. and European economies account for approximately 50 percent of global GDP, and the trade, investment, and commerce that passes between them amounts to $5 trillion annually. The sheer size of this relationship provides the logic behind the United States and Europe’s continuing to set the economic rules by which the rest of the world abides. Bringing the two economies together in a free trade agreement could unleash growth of 0.5 to two percent of GDP on each side of the Atlantic and create as many as two million jobs in the process.
A deal would give the West greater leverage to push back against China and reaffirm the liberal international order.
Brent oil not to go below $80; WTI could fall to $50
The international benchmark Brent crude has a ‘strong floor’ at $80 a barrel, as demand from emerging markets will soar, commodity strategists say
Demand in developed markets is likely to remain sluggish but is expected to soar in emerging markets.
Heavily populated developing countries like China, India, Indonesia have very low passenger cars per capita ratios compared to advanced states like the US, Germany or Japan, “which implies huge potential for growth in their car fleet,” the strategists said.
In China, cars are getting bigger and more fuel intensive, with sales of SUVs particularly strong, while in India, despite projected cuts in fuel subsidies which are likely to hit oil consumption in the medium-term, income and urbanization levels are likely to rise strongly, meaning the country will “contribute positively to oil demand growth in the non-OECD Asia region over the next 5 years.”
The Middle East “has become one of the fastest-growing regions in terms of oil demand,” the report said, adding that oil demand growth in Saudi Arabia “rivals and often exceeds that of other EMs like India, Brazil and Russia.”
A tale of two Davoses
The Economist was not impressed, apparently, citing numerous absences and concluding that “As with the world of banking, at Davos increasingly the real action—from doing deals to having fun—is happening in the unregulated shadow system. The WEF seems in two minds about how to respond to this, with some hosts of unofficial events grumbling about WEF officials telling them to tone things down. That is the instinct of the monopolist. Yet the WEF exists in an increasingly competitive marketplace for providing opportunities for the global movers and shakers to get together. A better strategy would be to deliver an even better official Davos in 2014.”
Davos tackles tax, fracking and zombies in hunt for next big idea
With financial crisis temporarily averted, high-fliers at the World Economic Forum in Switzerland were worrying about other things. These are the issues that were exercising the minds of wary political and economic leaders last week
Noteworthy: An army of the undead is marching through the crisis-hit economies of the western world – or that was the alarming picture painted by Nouriel Roubini, the outspoken New York-based economist.
Five years after the Great Recession ripped through the global economy, the radical emergency measures implemented by the world’s central banks have started to become the norm.
While their actions may have prevented a new Great Depression, central banks are now stuck in a bind: they don’t know when it will be safe to start reversing their policy of quantitative easing without unleashing rising economic chaos. And meanwhile, many thousands of financially shaky banks, businesses and households are being propped up. These are the “zombies”.
Cheap borrowing prevents uneconomic firms from going bust, but they can’t invest or expand because they’re still hamstrung by the debts of the boom years. Homeowners can’t move because they’re saddled with mortgages they can’t afford; banks won’t lend because of the holes in their balance sheets; and the result is long-term stagnation. Central bankers are much in need of another Davos buzz phrase, an “exit strategy”, but few in the mountain retreat were willing to offer one.
To End Extreme Poverty, End Extreme Wealth
(Inequality.org) The world’s wealthy gathered in the Swiss Alps once again last week to discuss how to ‘solve’ the world’s toughest problems. The world’s biggest problem, suggests one top global anti-poverty outfit, may be their fortunes.
… in these days of deep global economic uncertainty, the power suits that frequent Davos have lost their mojo — and even feel pressured to address the global economic inequality they’ve so long tried to sweep under the rug. That pressure last week came from figures like Christine Lagarde, the former French finance minister who now directs the International Monetary Fund. Lagarde blasted outsized executive pay in high finance, attacked bankers for lobbying against new regulation, and called for more “robust social safety nets.”
World Economic Forum ends on warning note over ‘complacency’
UBS chairman and top Chinese economist provide dissenting voices amid optimism of many speakers at Davos
Reuven Brenner: Land-based spells bring crises
(Asia Times) Although John Law’s name is now associated with the 18th century South Sea Bubble, the problem he wanted to solve was the same that central banks are struggling with today: “How much money and credit can be created without bringing about inflation, destabilizing the economy, or destabilizing the international financial system?” Law’s proposal then was that a “land-collateralized” note issue would be the solution.
The crisis we are in and that Japan has been in for two decades by now, show that the world repeated Law’s mistakes, though heavily disguised by new jargons, policies and financial instruments, which obscured the “land”-based-similarity. …
By looking at the crisis of sovereign debts through the “immobile” versus “mobile” prism, we get a better insight too. After all, such debt is “land-based” too, backed by national governments’ ability to tax people living in its territory (mother- and father-“lands”, take your pick). But what happens if the talent from these lands – what I often call “the vital fews” – move, be it abroad or through evasions?
The “land” stayed the same, but the ability and incentives to create wealth, and the part of such wealth that would be taxable – has diminished, as Italy, Greece, Spain – and now France – show.
Dubious Awards Presented at Davos
(IPS) – Only a stone’s throw from the Davos World Economic Forum meeting, a group of non-governmental organisations presented the annual Public Eye Awards this week to Goldman Sachs and Royal Dutch Shell.
Joseph Stiglitz and the World Economic Forum: Making the Connection Between Climate Change and Economics
(HuffPost) In his widely circulated article, “The Post-Crisis Crises,” Joseph Stiglitz argues that “in the shadow of the euro crisis and America’s fiscal cliff, it is easy to ignore the global economy’s long-term problems.” But, he continues, “While we focus on immediate concerns, they continue to fester and we overlook them at our peril.” And, he argued, “The most serious is global warming.”
The costs associated with global warming related extreme weather have already impacted deeply the U.S. economy. A recent study by Munich Re found that North America has been most affected by weather-related extreme events in recent decades from 1980-2011: the overall cost totaling $1,060 billion (in 2011 values).
HuffPost offers extensive coverage on Davos 2013 ‘Resilience’
Davos’s Dubious Strategic Partners
(Bloomberg) The aspirational hypocrisy of the World Economic Forum is enshrined in its motto: “Committed to Improving the State of the World.” … the WEF makes a big deal of its embrace of rainbow-hued do-gooders. The Forum is forever trumpeting its commitment to transparency and inclusiveness along with a burgeoning list of initiatives to advance the same.
But let’s follow the money — where it comes from and where it goes, starting with the 100-plus strategic partners … Consider one such leading corporate citizen: Axel Weber, co-chairman of this year’s Davos meetings and chairman of UBS, Switzerland‘s largest bank. Last year, his company was fined $1.5 billion for its schemes to rig global interest rates. The U.S. Commodity Futures Trading Commission cited more than 2,000 instances of illegal acts involving dozens of UBS employees. And that scandal followed a $780 million U.S. settlement in 2009 over charges that the bank had helped U.S. clients avoid taxes. WEF founder Klaus Schwab‘s choice of Mr. Weber as co-chairman perhaps speaks volumes about his own values.
The World Economic Forum doesn’t matter
(Salon) The global elite are on a Swiss mountain to hobnob and make bad predictions
Davos: The 2013 Sneak Preview by Ian Bremmer
(HuffPost) As the world struggles to bolster its resilience against economic and political uncertainty, the key risk is the increasing vulnerability of elites. We’re seeing leaders of all kinds, in the developed and developing world, in politics as well as business and media, answering to constituents who grow more dissatisfied… and information-rich. Look at the riots in India over the recent rape scandal, the US Congress’ abysmal approval ratings, or the phone hacking scandal at News Corp. Corruption, special interests, or a lack of transparency will spell trouble for leaders. The same goes for a widening gap between rich and poor. The threat to elites of all kinds comes in multiple forms: leaders who are battling for legitimacy will struggle to pursue long-term objectives rather than resort to reactive, ‘quick fix’ approaches. And in some instances, it could destabilize the very institutions–or even governments– that these elites represent.
I chair the Global Agenda Council on Geopolitical Risk, where we outline the growing vulnerability of elites–as well as key risks and opportunities more generally–in our report that launched today. Feel free to take a look at the report in more depth.
Davos call for $14trn ‘greening’ of global economy
Political and business leaders warned of need to ensure sustainable growth
(The Independent) An unprecedented $14trn (£8.8trn) greening of the global economy is the only way to ensure long-term sustainable growth, according to a stark warning delivered to political and business leaders as they descended on the World Economic Forum in Davos yesterday.
Only a sustained and dramatic shift to infrastructure and industrial practices using low-carbon technology can save the world and its economy from devastating global warming, according to a Davos-commissioned alliance led by the former Mexican President, Felipe Calderon, in the most dramatic call so far to fight climate change on business grounds.
The World Economic Forum in Davos — Leaders without followers
(The Economist) AS THE movers and shakers head to the Swiss mountain resort of Davos this week for the annual World Economic Forum, their credentials as global leaders look anything but resilient. Their official theme will be “resilient dynamism”, whatever that means, but what they ought to be talking about is the low level of trust the public has in their ability to do anything useful. … This lack of trust seems strikingly personal. … trust in business and government leaders is far lower than trust in the respective institutions of business and government. Globally there is a gap of 32 percentage points between trust in business and trust in business leaders to tell the truth (35% in America and China), and a 28 percentage-point gap between trust in government and trust in its leaders to tell the truth (47% in China, 35% in India).
Oxfam: Annual income of richest 100 people enough to end global poverty four times over
The $240 billion net income in 2012 of the richest 100 billionaires would be enough to make extreme poverty history four times over, according Oxfam’s report ‘The cost of inequality: how wealth and income extremes hurt us all.’ It is calling on world leaders to curb today’s income extremes and commit to reducing inequality to at least 1990 levels.
Biggest Threats To The Global Economy, According To The World Economic Forum
Growing income inequality is the biggest threat to the world’s economy, says the latest edition of the World Economic Forum’s Global Risks report.
The report, which surveyed more than 1,000 industry, government and academic experts, also throws up a litany of other risks that could derail the slow, lumbering recovery from the financial crisis of recent years, including a “major systemic financial failure,” food and water shortages, cataclysmic climate events, and “diffusion of weapons of mass destruction.” …
The survey found a close correlation between respondents who worried about growing income inequality and those who worried about a backlash against globalization, suggesting experts may be worried that the increasing concentration of wealth in the hands of capital owners could turn the public against free trade and other policies designed to liberalize the international economy.
Joseph Stiglitz: The Post-Crisis Crises
(Project Syndicate) In the shadow of the euro crisis and America’s fiscal cliff, it is easy to ignore the global economy’s long-term problems. But, while we focus on immediate concerns, they continue to fester, and we overlook them at our peril.
The most serious is global warming. While the global economy’s weak performance has led to a corresponding slowdown in the increase in carbon emissions, it amounts to only a short respite. And we are far behind the curve: Because we have been so slow to respond to climate change, achieving the targeted limit of a two-degree (centigrade) rise in global temperature, will require sharp reductions in emissions in the future. Read more
Climate change to figure prominently at Davos
Pressure is increasing on stakeholders to reach a global deal by 2015 on climate finance, adaptation and mitigation. In fact, climate change will be “front and center” at the upcoming annual meeting of the World Economic Forum in Davos, Switzerland, writes Thomas Kerr. The Huffington Post (1/2)