sputnik--2019-10-15--IMF Predicts Worst Economic Growth Since 2008 Financial Crisis, Urges Increased Spending

The International Monetary Fund (IMF) has warned of the worst global economic growth since the 2008 financial crisis in its latest forecast for 2019.  In its World Economic Outlook, the IMF reduced its growth forecast to 3% for 2019, "its lowest level since 2008–09 and a 0.3 percentage point downgrade from the April 2019 World Economic Outlook".  The dismal prediction comes amid increased trade barriers and conflict, especially between the world's two major economic powers - China and the US, who are currently locked in an embittered trade war.  The fund identified the conflict as one cause of the slowing growth, as well as "macroeconomic strain" on emerging and developing economies such as in Latin America, which since the crash have aided in global economic recovery.  However, the report did offer some more positive news for 2020, projecting a "pick up to 3.4 percent in 2020" due to "improvement in economic performance in a number of emerging markets in Latin America, the Middle East, and emerging and developing Europe".  Gita Gopinath, the IMF's chief economist, said: "The global outlook remains precarious with a synchronised slowdown and uncertain recovery. At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to support growth. The global trading system needs to be improved, not abandoned".  "Countries need to work together because multilateralism remains the only solution to tackling major issues, such as risks from climate change, cybersecurity risks, tax avoidance and tax evasion, and the opportunities and challenges of emerging financial technologies", she added.  Ms Gopinath also warned against a no-deal Brexit, claiming it could seriously limit UK growth: "Heightened trade and geopolitical tensions, including Brexit-related risks, could further disrupt economic activity, and derail an already fragile recovery in emerging market economies and the euro area".  The report stressed that to avoid such an outcome, governments should aim to reduce trade barriers, but also provide key public economic investment and support: "policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed".  This comes as the Bank England projects the UK's lowest productivity in five years in the second quarter of 2019, blaming uncertainty regarding Brexit and businesses not investing in technology or software.  Nissan warned that a 10% tariff increase following a no-deal Brexit may see it become "unsustainable" to maintain a manufacturing base in the UK.  Recent developments of a partial agreement last week between the US and China and the delaying of tariffs on Chinese imports originally scheduled for 15 October may indicate that the recommended lifting of trade restrictions could materialise, despite no agreement outline currently existing.  China and the US remain locked in a trade war, based on accusations by the Trump administration that outsourcing and "unfair" behaviour on the part of China has led to the loss of jobs in the US, particularly manufacturing jobs. Meanwhile China has adamantly rejected these assertions, claiming that the US is resisting legitimate competition.


sputnik--2019-11-10--‘True Cost of Corbyn’: Labour’s Election Pledges Could ‘Trigger Economic Crisis’ Warn Tories

British finance minister Sajid Javid has told the BBC the opposition Labour Party's spending plans would trigger an economic crisis within months, as he cited a contested dossier compiled and published by his Conservative Party.  Earlier, the UK Chancellor of the Exchequer was reported by the Sunday Telegraph as claiming the Labour party’s election promises would cost taxpayers an extra 1.2 trillion pounds, ($1.5 trillion).  Opposition and Labour leader Jeremy Corbyn, if elected, would increase spending more than three times faster than former Prime Minister Gordon Brown, Javid was cited as saying, as he lambasted Labour’s expenditure plans as “truly frightening.”  On Sunday the Conservatives published a dossier that Sajid Javid said showed the “true cost of Corbyn”, including taxes set at the “highest level we’ve ever seen in peacetime”.  Labour’s spending plans amounted to “scrapping all funding for the NHS - the UK’s universal health-care system - for the next nine years,” said Javid.  The Tory dossier is based on a cost analysis of Labour's 2017 manifesto and other pledges it has made since then, including a number of commitments from Labour's annual party conference.  Shadow chancellor John McDonnell branded the Conservative report a "ludicrous piece of Tory fake news" and an "incompetent mish-mash of debunked estimates and bad maths, cooked up because they know Labour's plans for real change are popular", reported the BBC.  Shadow chancellor John McDonnell has previously said he wants to more than double UK investment spending to an extra £55bln per year, with Labour intending to borrow more than the Tories to invest, claiming this would boost economy growth more rapidly and increase the state's assets rather than just its liabilities.  The UK Labour Party has yet to publish its 2019 election manifesto, with senior Labour figures meeting next weekend to decide which policies passed by the party's annual conference will become manifesto proposals for government.  Previously, civil service head Sir Mark Sedwill on 6 November scrapped the impact assessment of the Labour Party’s election pledges, triggering a backlash from some of the Conservatives, while Labour argued it was interfering in the upcoming general election.  Earlier, the Labour Party officially launched its campaign for the 12 December general election, with Corbyn confirming last month his push for a second referendum, also known as a “people’s vote”, saying that “after three years of Tory failure, it’s time to take the decision out of the hands of politicians and let the people have the final say”.  The snap general election was approved by the UK Parliament's House of Commons on 29 October, a day after Brussels offered another deadline extension for the UK, giving the country until 31 January 2020 to ratify the Brexit deal negotiated by Johnson.  The Conservatives and Labour are set to face each other in a heated competition, the results of which many observers see as being the most unpredictable in modern British history.  According to a recent poll conducted by YouGov, however, the UK Labour Party is suffering a major loss of support in virtually all regions of the country.  The pollster compared the data obtained from 11,500 respondents with data from 2017.  The interviewees were asked who they would support should an election take place tomorrow.  The survey revealed that the party has lost ground even in regions where it traditionally enjoys a lot of support.  According to the poll, the region that has seen the biggest decrease of the support for Labour is the North West, where the number of likely voters has figure by 25 points compared to two years before.


sputnik--2019-12-26--India Can Turn Economic Crisis Into Chance for Development

The IMF’s annual review called declining consumption and investment activity, as well as tax revenues and a number of other factors impediments to one of the fastest-growing economies in Asia and the Pacific.  According to the government, from July to September, India’s economic growth was the slowest in six years, falling to 4.5 percent. The central bank cut its forecast for 2019 from 6.1 to 5 percent. The Reserve Bank of India has lowered its key lending rate five times this year to a nine-year low, but the economic recession doesn’t stop. In early December, the bank left the discount rate unchanged, causing disappointment and misunderstanding on the part of the IMF.  According to observers, the signs of a US trade war against India this year could have exerted strong psychological pressure on Indian export-oriented companies. The US revocation of India’s preferential trade status has closed the doors for annual exports of up to $5.6 billion worth of commodities to the United States. At the same time, before India’s status was revoked, it had been one of the largest beneficiaries of the US generalized system of preferences.  India is currently trying to regain trade privileges from the United States, apparently counting on export growth, and hence state revenue.  Apparently, India’s economic troubles have made the Indian negotiators on the preparation of the Comprehensive Regional Economic Partnership agreement (RCEP) nervous.  At the same time, because of the psychological barrier – the fear of an influx of Chinese goods after trade liberalization under the RCEP agreement – Indian partners haven’t yet managed to objectively assess the benefits of participating in this multilateral mechanism for economic development.  According to Yu Lunyuy, Head of the Centre for Indian Studies of Shenzhen University, Chairman of the China Association for the Study of Indian Culture, China has the technology, capital and advanced engineering experience and is one of the few countries that can help India solve its problems.  “At first glance, the economic recession is a purely economic problem, but in reality it is a complex problem, which also includes politics. A number of recent steps by the Indian government have negatively affected its economic development. If the Indian economy continues to decline, the situation in the country will worsen,” the expert noted.  The Chinese Indologist believes that building trust between China and India will remove barriers in bilateral economic and investment cooperation:  According to Yu Lunyuy, India’s cooperation with its BRICS partners is a strong driver of growth for the country’s economy:  2020 marks the 70th anniversary of diplomatic relations between China and India. The parties plan to hold 70 celebrations, considering them a new chance for developing bilateral contacts.  As Chinese Foreign Minister Wang Yi noted at a meeting with Venkaiah Naidu, the Vice President of India, Chairman of the Council of States, the successful second informal meeting of the two countries’ leaders in Chennai has set the vector for cooperation development.


tass--2019-02-17--Russias economy lacks factors leading to economic crisis - minister

Russia’s economy lacks factors leading to economic crisis - minister

MOSCOW, February 17. /TASS/. Russia’s Economic Development Ministry develops macroeconomic institutions to prevent sudden and deep economic crises, Russian Economic Development Minister Maksim Oreshkin said on Rossiya’24 television channel on Sunday.  Oreshkin added that there are no systemic prerequisites for an economic crisis in the Russian economy.  "We build [Russia’s] macroeconomic institutions in such a way that the crises will not come out of the blue. The common macroeconomic structure now presupposes a lack of these systemic problems which might end up in deep crises like it was in 2008 or in 2015," Oreshkin said.  Earlier, Spokesman for the International Monetary Fund (IMF) Gerry Rice said that the IMF believes the global financial crisis of 2008 was the worst in modern history.  In other media


thedailyblog--2019-08-16--The coming economic crisis unorthodox monetary policy and Donal Trump

The coming economic crisis, “unorthodox” monetary policy, and Donal Trump

What is behind the “unorthodox” monetary policies of the US and other Central Banks?  There is much discussion today around how effective monetary policies are in regulating the ups and downs of the business cycle.  Monetary policies are run by the Central Banks of the respective countries with the US Federal Reserve operating like the world’s central bank. Their principal tools are the setting of certain interest rates they can control or influence and creating or reducing the supply of token money.  The US Federal Reserve has resumed monetary creation policies earlier than expected at its July 30/31 meeting including a cut in what is known as the federal funds rate from 2.5% to 2.25%. They also halted the repurchase of the massive amounts of token money issued between October 2008 and October 2015 in response to the global financial and economic crisis of that time.  To understand what is happening we need to understand the interaction of three types of money in existence today.  One form is gold which as a product of human labour has emerged as the universal equivalent of all other commodities as a measure of value. All societies with a developed system of commodity production and exchange need a universal equivalent to function. Gold can also be hoarded for its intrinsic value, especially in times of monetary disorder.  Gold does not disappear. It always retains its value through any crisis. Capitalists and central banks hold a portion of their wealth or reserves in gold because of these special properties.  The second form of money is token money issued by the state, dubbed “fiat” money by economists.  So long as the currency is not “over-issued” the currency – whether it be dollars, pounds, yen, or rupees – can retain its value so long as it backed up by a state power which can impose taxes and use force on those it wants to do its bidding.  But if the currencies are “over-issed” they lose value in proportion to the over issue. A doubling of  token currency will in normal circumstances result in a halving of its individual value. This is the origin of general price inflation we saw during the 1970s and early 1980s. Then US President Richard Nixon declared “We are all Keynesians now” and believed he could finance the Vietnam War without massive cutbacks in social spending in the US through budget deficit spending. The end result was a steady devaluation of the US and other currencies and endemic inflation worldwide.  The first casualty of this policy was for the US dollar to cut its link to the gold at $35 an ounce in 1971. Being “free” of the gold “shackle” as it was dubbed by opponents of the gold standard, only encouraged further devaluation. The price of gold hit $120 an ounce in 1976. Soon we had “Stagflation” inflation and economic stagnation at the same time. By the late 1970s, there was a flight out of the US dollar into gold that saw the “price” of gold soar to nearly $600 an ounce. To prevent a total collapse of the currency the US Federal Reserve had to drive up interest rates to record levels of 20% for the Federal Funds Rate and drive the economy into a deep recession. Inflation dropped from 14.8% in March 1980 to 3% by 1983. By the mid-1990s gold stabilised for a period at around $400 an ounce.  The amount of token money that can be issued is governed bt the total amount of gold bullion is existence in the world. This usually expands at a relatively steady pace of say 2% a year so it is a relatively safe bet that token money can also be increased proportionately. But gold production also has its own cycle which runs counter to the normal industrial cycle and impacts interest rates and places objective limits on token money and credit creation.  If there were no objective limits to the creation of token and credit money there would never be a crisis every ten years or so like we have seen throughout the 150-year history of developed capitalism. These crises have been analysed and explained by Karl Marx as being generalised crises of overproduction relative to the ability of the market to absorb these commodities at prices that guarantee the producer at least the average rate of profit. Overproduction is reflected in growing inventories, factory shutdowns and unemployed workers. If token or credit could be expanded at will forever then there could be no such crises. That is why pro-capitalist economic writers can’t explain why they happen.  Monetary authorities don’t really understand what exact total of token money they can issue without devaluation.  They operate to a great degree on trial and error. They don’t know what they are measuring the currency against but the consequences of over-issuing become apparent very quickly in a rising price of gold, a broader leap in commodity prices and then a general rise in prices. This forces the central bank to increase interest rates, cut back on the currency being issued or purchasing previously issued currency to neutralise it. Failure to take action can lead in some extreme circumstances to hyperinflation and a currency collapse.  The third form of money is credit money. Under a developed system of finance and credit this is centralised by the banks. They are able to use deposits of token money as a base from which to expand lending many times over the actual sums deposited. So long as everyone doesn’t want their money back at the same time the merry-go-round can continue. This is called fractional reserve banking.  But banks are a profit-making competitive businesses. They have a built-in tendency to seek more and more creative ways to create and extend credit to maximise their returns. Derivatives are the latest example of that. Eventually, a breakdown happens which will begin at the weakest links of the credit chain. A credit crisis and collapse of at least the most over-extended institutions then follows.  Credit money is not “real” money like gold and can disappear completely without a trace. In fact, the over-issuance of credit must be periodically neutralised for the system to restore balance. If there is no reduction in credit money then it is essentially being converted into token money which will fuel an inflationary surge sooner rather than later.  There is a real fear that exists in the global economy because the world is going into a new economic crisis and the monetary tools that are available to deal with the crisis are virtually non-existent compared to 2008.  Interest rates are close to zero unlike in 2008 when they could be cut dramatically. In the US they went from 5.25% to zero. In New Zealand, the Reserve Bank’s Official Cash Rate went from 8.25% to 2.5% in a year. It is now at 1%.  The US Fed and other central banks also indulged in the massive printing of token money, dubbed Quantitative Easing. That cannot be repeated in the same way for reasons I will discuss. Most governments in the advanced capitalist countries in Europe, North America, and Japan also have limits to their ability to use fiscal measures to counter the approaching downturn. Normally this would involve the government spending more than it takes in taxes. Most of these capitalist governments massively increased debt after the 2008 crisis and a new round like that would likely lead to surging interest rates and economic collapses rather than a new stimulus. New Zealand is a little unique in advanced capitalist countries for the low level of public debt and that will be an option here because of that. Government deficit spending also pushes interest rates higher than they otherwise would be and undermine the rate of profit of enterprise as a consequence. This happened to a degree with US President Trump’s tax cuts that were implemented in 2018. The resulting huge budget deficits helped push up long-term interest rates in the US and trigger mini-collapse in the stock-market in December 2018 and a decline in industrial production in early 2019. The ability to create token money in massive amounts like in 2008 is also limited because that increase has not been unwound significantly since then. The US Federal Reserve which operates like the world’s central bank virtually doubled the token money supply overnight to prevent the broader collapse of the banking system. In fact, the government often simply bought the worst form of debt of the banks for cash and government securities. This is in effect turning some of the credit money into token money and increasing the possibility that the US currency will lose value in an inflationary surge What is remarkable and need explaining is why there has not been an immediate inflationary surge followed by a surge in interest rates following that binge of money printing.. The Federal Reserve held off on intervening until the fourth quarter of 2008 when the crisis was already underway and panic had already broken out. This meant that there was a huge demand for US dollars as a means of payment in the world’s financial system. Most debts in the world are denominated in US dollars. Everyone wanted dollars to settle the debts that were being called in rather than rolled over. Capitalists all over the world were also desperate to build up their cash reserves as much as possible to protect against future risk. The US dollar became a preferred form of hoarding. The Fed made it clear it would create whatever was needed to stabilise the system. They even agreed to pay interest on the massive reserves now being held by commercial banks in their Federal Reserve Accounts. There has not been generalised inflation as a consequence because the money was absorbed and held as a means of payment during the crisis and after as a means of hoarding afterward. The “Fed” also committed to returning to monetary normalcy by reducing the increased money supply as quickly as possible. The huge increase in the money supply also pushed down interest rates to historic lows. This should have given added impetus to the recovery that followed. The rescue of the banks and broader credit systems in 2008 has meant that there hasn’t been a proper cleansing of the rot in the system. US corporate debt has doubled in the US to $9 trillion since 2008. Government debt has doubled to $21 trillion. US consumer debt at $13 trillion also exceeds the 2008 level again. But this business cycle for US capitalism has been one of the weakest in history. Industrial production after ten years remains at only 80% of capacity. The is part of the reason the cycle is longer than usual. The overproduction crisis is more limited and the crisis is therefore delayed. The actual economic decline during the 2008-2009 recession was far more severe than any other recession since the great depression of the 1930s. Normally there is a strong relationship between speed and strength of the recovery and the preceding depth of the recession. Not this time. In fact, the record weakness in the economic recovery has led to this stage of capitalism being dubbed a period of “secular stagnation.” Secular stagnation, in turn, creates a pool of permanent and long-term unemployment which has intensified competition for access to work among workers across the advanced capitalist world. Capitalist use this competition to weaken unions and derive up profits by increasing the rate of surplus-value they can extract from workers. This has created openings for right-wing political demagogues to claim they have solutions by blaming “the other” – especially immigrants and refugees – for their problems. Competition has also intensified between different capitalists and different capitalist nation-states. This inevitably results in a further centralisation of wealth into the hands of a small group of billionaires – the 0.0001 % – a tiny ruling class layer who really call the shots in the capitalist world today no matter what government supposedly governs us. Partly because capitalists have hoarded dollars rather than invested them, the recovery was so slow that the Fed was forced to continue Quantitative Easing until October 2015 rather than return to monetary normalcy quickly. The Fed began to shrink the monetary base by a modest 5.6% annual rate for five years after a 20% annual growth for seven years. The Federal Reserve funds rate also crept up from zero to 2.5%. The decision to cut the interest rate at its last meeting is a signal that monetary growth policies will resume. They also agreed to convert the mortgage-backed securities they hold as a consequence of various bailouts to government ones as is normal. The cut in the Federal Funds Rate, the signs of a global slowdown, the promised monetary easing, and a flight to safety in US government bonds has again pushed long-term interest rates down. This is what Trump and the Fed wants. Trump is pushing for even stronger easing steps to help ensure there is no deep recession before the next election. But the Fed is looking like it is responding to Trump’s tweets rather than objective decision making. This can undermine the “confidence of the markets” ie big financial capitalists who invest in the bond and currency markets in whether the Fed is making the correct decisions. While there has not been a broader inflationary surge yet, there has been a steady increase in the “price” of gold in US dollars as first the 2008 financial crisis and then quantitative easing policies were launched. The price hit $1657 in 2012 before dropping again to around $1000 2015 as more confidence the worst was over returned. A return to positive interest rates and an end to money printing after October 2015 should have led to a further fall in the dollar price over the last few years. Instead, it has been edging higher and higher and is back over $1500 an ounce. The traders in gold, the speculators proper, clearly don’t have renewed confidence that the original reversal of easing was serious enough, or that the renewed easing is justified. They suspect the easing is too soon, that the easing is happening before the credit squeeze and recession that allowed the easing to occur in 2008 without broader inflation. The promise of zero or negative interest rates by other central banks is also encouraging hoarding in gold. You may not earn interest but your wealth is at least preserved. A new surge in the price of gold in US dollars would force the Federal Reserve to reverse course and start hiking interest rates and reversing easing once more. Trump would then have the choice of firing the Federal Reserve and forcing his changes, as he hinted at doing in late 2018, or having an election-year recession. This would provoke a political and economic crisis of historic proportions. Watch this space over the next few months.


Pakistan’s Economic Crisis

Pakistan is going through financial woes. The Government’s external debt sits at over 100 billion dollars [up significantly since 2017], while foreign currency reserves hovered in the range of 15 billion last July. To make matters worse, the Central Bank of Pakistan has been raising the interest rate in the last moths, from an initial rate of 6 percent up to 13.25 percent. In a recent article on Erdogan’s monetary policy ideas, I explained why spiking the interest rate isn’t wise. At the same time, private sector debt has gone up by more than a quarter since 2018. In July it started to dip a little. And for the current year, Pakistan’s industrial production has done nothing except to shrink as we see below.  Before we move on to the political and policy side of things, let’s have a look at Pakistan’s sectoral balances as percentage of GDP. Starting with 2016, the foreign sector received a larger chunk of the Government’s fiscal deficit funds, while the domestic private sector’s net share of it dropped significantly.  The Government of Imran Khan has only been in power for several months; and the rising inflation [reaching over 10 percent in July] during this period has been blamed on the former administration. People at grassroots aren’t blaming Khan for the problems, and they still have hope his Government will fix the economy. The IMF approved a three year 6 billion dollar loan “to support Pakistan’s economic plan, which aims to return sustainable growth to the country’s economy and improve the standards of living.” Despite pledging not to seek IMF assistance, Khan changed his mind… and earned himself the nickname of prime minister of U-turns. He also seeks foreign investment to get out of the crisis; so much so, in fact, that Khan, in an interview with Al Jazeera on the issue of Chinese reeducation camps for its Muslim minority [the Uyghurs], said he doesn’t know anything about it. Instead, Khan underlined the great business relationship between the two countries, naming China “the best friend” for Pakistan. Beijing doesn’t forget state partners who remain loyal, so I expect Chinese investment will ramp up in a timely fashion.  As a side note, here’s a list of countries [Blue] who condemned China for its interment camps destined for its Muslim minority, countries [Dark] who praised China for its human rights record, and countries [Red] who abstained from doing one or the other.  For the next year, the Government budget will have to be made up according to IMF conditions, which means that austerity is in order. People fear a rise in taxes and there’s talk about potential strikes due to layoffs. When we look at the tax changes in recent years, we observe three things. The personal income tax rate in Pakistan has remained, on average, 20 percent. But the corporate tax rate has gone down in 2014 [from 35 to 34], and by another percentage point in each subsequent year. It stabilized at 31 percent in 2017. While the sales tax went from 16 to 17 percent in 2014 and remains so. Now, all these taxes are regressive, and they should be abolished. As always, the fiscal advice I give is: land-value capture + untaxing wealth creation [labor, buildings, sales, and enterprise] + asset side rules for the banking sector in order to combat financial speculation + permanent zero interest rate policy to further minimize cost pressures on output. Khan’s administration will, no doubt, levy austerity policies to comply with the IMF’s desires. If they’re prudent, they’ll be able to cut more into the fat and less into the muscles and organs of the economy.


theindependent--2019-01-10--Nicolas Maduro celebrates start of second presidential term as devastating economic crisis worsens i

Nicolas Maduro celebrates start of second presidential term as devastating economic crisis worsens in Venezuela

Venezuelan president Nicolas Maduro has started a second term in office, in the face of growing isolation from the international community and a worsening economic crisis.  A dozen Latin American governments and Canada have joined together in a coalition to reject the legitimacy of Mr Maduro's next six-year term, and the US has sanctioned top officials in his government.  However, Cuba's president Miguel Diaz-Canel and Bolivia's president Evo Morales were among foreign leaders who attended the ceremony at the country's supreme court.  While Mr Maduro's popularity has plunged amid hyperinflation, scarcities and rising authoritarianism, supporters in shantytowns who receive government subsidies continue to back the late Hugo Chavez's successor.  Leaders from the ruling Socialist Party called for rallies in his support and disavowed criticism of Mr Maduro's inauguration, which will keep him at the helm of the country until 2025.  But continued support from the military, a fractured opposition and a relentless crackdown on opposition critics means Mr Maduro appears to face few serious challenges at home, despite the international outcry.  "They've tried to turn a constitutional swearing-in ceremony into a world war," Mr Maduro said during a news conference on Wednesday. "But whether there's rain, thunder or lightning, we're going to triumph."  State TV showed Mr Maduro arriving at the supreme court where he is taking the oath of office. Several hundred supporters inside lining terraces of the building's courtyard waving small flags and cheering.  His second term will extend Venezuela's socialist revolution amid widespread complaints he has stripped the country of its last vestiges of democracy.  Mr Maduro denies he is a dictator and often accuses Donald Trump of leading an economic war against Venezuela.  "Not before, not now, nor will there ever be a dictatorship in Venezuela," Mr Maduro said during the news conference on Wednesday.  Oil-rich Venezuela was once among Latin America's wealthiest nations, producing 3.5 million barrels of crude daily when Chavez took power, but output has now plummeted to less than a third of that.  Inflation is fast approaching two million per cent and an estimated 2.3 million Venezuelans have fled hyperinflation, food and medical shortages over the last two years, according to the United Nations.  The country's splintered opposition movement has failed to counter the socialist party's dominance and Mr Maduro's government has jailed or driven into exile its most popular leaders.


theindependent--2019-01-14--Banking sector warns of 1930s-style crisis after no-deal Brexit aposSocial and economic catastrop

Banking sector warns of 1930s-style crisis after no-deal Brexit: 'Social and economic catastrophe'

A no-deal Brexit would be an economic and social “catastrophe”, a senior banking industry leader has warned.  Stephen Jones said leaving the European Union (EU) without an agreement could lead to a 1930s-style economic depression, with widespread job losses, homeowners unable to afford their mortgages, and mass defaults on loans.  “A no-deal Brexit on 29 March, where we crash out of European Union, is a catastrophe,” the head of the UK Finance trade body told Channel 4 News. “It’s a social catastrophe, it’s an economic catastrophe.”  The devastation caused by a disorderly exit would not just hurt the banks’ bottom lines, but hit ordinary people, he warned.  “I don’t wish to be labelled a doom mongerer… but if our economy contracts by 10 per cent that’s 1930s-style contraction," he said. "That is a massive increase in credit card losses, mortgage losses, vehicle loan losses.  “This is about jobs, this is about people not being able to pay their mortgages, not being able to pay back their loans, and that’s really bad news and it’s an outcome we can avoid.”  Mr Jones, who leads the British banking sector's lobby group, added: “I think there is a real risk of No Deal happening by accident… if the prime minister’s deal is voted down, we are in totally uncharted territory.”  Asked if he backed Mrs May’s deal to prevent a no-deal scenario, Mr Jones would only say he backed a “solution that avoids a no-deal Brexit”.  He added: “It’s not a great deal, there’s an awful lot of money being paid for a political declaration, which quite frankly is not worth the paper it is written on.”  The political declaration is the second part of the withdrawal agreement which sketches out how Britain and the EU will build their new future relationship after the UK has formally left the 27 nation bloc.  Unlike the rest of the document – which deals with how Britain disentangles itself from the EU and will pay £39bn in the so-called divorce bill – the political declaration is not legally binding nor does it go into significant detail.  London’s position as the centre of the financial world will end after Brexit, Mr Jones also bemoaned, and the Brexit process had “diminished” the capital’s status in the world.  “London as the European financial centre appears to most us to be – frankly, quietly – over. We’ll do our best to retain what we can, within the context of what’s negotiated, no deal or a deal, but Frankfurt and Paris will become much more important financial centres in a European context.”  The government has been ramping up preparations for a no-deal Brexit in recent weeks.  A Treasury minister was photographed with a briefing note which warned it could cause “no food” and “no Channel tunnel” after leaving a meeting with officials.  Suppliers have been urged to stockpile food in the event of the prime minister’s Brexit deal being rejected, and some people have also been hoarding food and essential supplies themselves in case Mr Jones’s dire warnings come true.


theindependent--2019-06-03--How can Britain stage an economic recovery after the Brexit crisis

How can Britain stage an economic recovery after the Brexit crisis?

Without an effectively functioning economy, such objectives as “fairness” cannot be realised, and political extremes flourish. What Britain needs to prosper socially and financially in the 2020s is a longer-term strategy for sustainable growth which addresses the country’s deep failings in respect of skills, short-term financial horizons and housing. And, now, those of us who oppose Brexit and economic nationalism generally face the challenge to say how we would improve the functioning of an economy damaged by the financial crisis and then, again, by Brexit. Good economic management will be more critical than ever.  In the late 1960s and 1970s Britain suffered from “stagflation”: rates of inflation well above historic trends and occasionally reaching double figures (leading to a balance of payments crisis under a fixed exchange rate system) combined with slow growth relative to developed-country comparators.  What followed was a revolution in policy terms which came to be known as “Thatcherism” (with similar reactions elsewhere, notably the US): a fundamental switch from state ownership and controls to much greater faith in private ownership and market freedom (and with it, toleration of greater inequalities); independence for central banks to control inflation; fiscal rules to stop the build-up of unsustainable deficits and debt; and full-blooded engagement with an open “globalised” economy through trade, financial markets, international investment and (to a degree) migration. The Blair/Brown era of Labour government cemented this transformation.  Yet after the 2008 financial crisis no such fundamental rethinking of economic policy has occurred. On the British left (as also in the US and France) there is much denunciation of “neoliberalism” and austerity but little indication of what this means in practice except in a few exotic (and disastrous) experiments, as in Venezuela. There has been a revival of belief in nationalisation, though not in explaining how it would actually work.  There is a reaffirmation of the belief in more progressive taxation, but no developed economy has yet moved strongly in that direction. And led by the Democrats in the US, the emergence of the “Green New Deal” is proving a rallying point for mobilisation around a powerful and compelling theme – combatting climate change – albeit, so far, without realistic thinking on the financing of it.  If there has been any kind of paradigm shift it has been a revival of economic nationalisation, mainly in the form of trade protectionism (and anti-immigrant attitudes) in the US and disengagement from EU integration in Britain by the decision, as part of Brexit, to leave the EU Single Market.  It makes no sense to go back to the 1970s, as some on the left wish to do: restoring price, rent and exchange controls (or trying to); renationalising utilities and the manufacturing industries which used to constitute the “commanding heights” of the economy; abandoning fiscal rules in the name of “ending austerity”; bringing back penal tax rates on high incomes and corporate profits.  Nor is there much attraction politically (or economically) in taking the Thatcherite revolution to another level, as some on the Brexit right wish to do: scrapping many of the remaining labour, consumer protection and environmental regulations; pursuing as a matter of doctrine, rather than fiscal necessity, a “small state” agenda in respect of tax and government spending.  In reality there are market failures and government failures. Good policy is about getting a sensible balance between making use of markets where possible and government where necessary – not a philosophy that will appeal to demagogues, but correct, nonetheless. Economic competence is not a message that stirs the soul but, without it, rising living standards and socially progressive measures are not possible. And we start from a position where there are major elements in the current model that we should be fighting to preserve as well as some major failures to correct.  One of the big advances of recent years which populists of the right and left are trying to undermine is independent central banks, overseeing financial stability. Unsurprisingly, the Bank of England is one of the main targets of the Brexit right and the radical left, complaining about the “liberal elite”, as represented by the Federal Reserve in Trump’s US and the European Central Bank in the eurozone.  What is fundamentally at issue is the principle that day-to-day economic management, be it of monetary policy or financial regulation, should be left to politically independent “experts” acting on the basis of evidence. That principle should be defended as tenaciously as the principle that operations in NHS hospitals should be carried out by medical professionals rather than witchdoctors or cranks. I made my maiden speech in parliament in 1997 in support of Gordon Brown’s decision to grant operational independence to the Bank of England, one of the most important parts of his legacy.  Where politics come in is in setting the rules for the Bank to follow, reflecting the experience of a major financial crisis and the fact that inflation is no longer the issue it was a generation ago (indeed, deflation has emerged as a real threat). The first changes could be to recognise the reality that the aim of policy, especially for interest rates, is to keep the economy growing as fast as possible.  The way of expressing this, technically, is to set a target of money GDP (inflation plus real growth) which is pretty much what has happened in practice. The second is to acknowledge that where inflation has been dangerously high is in the property market.  That is partly an issue of supply and demand, as I discuss below, but also of the availability of credit. Instead of politically driven, counter-productive and costly schemes like Help to Buy, the availability of credit should be determined by the Bank in what are now called “macro-prudential” policies. And third, one of the very painful lessons of the financial crisis is the danger posed by financial institutions that are not closely regulated (or supervised), and that accumulate high levels of leverage (debt), threatening the stability of the system.  I have argued that the British financial service industry and its collection of banks (and shadow or quasi banks which create credit like banks) is simply too big for a medium-sized country. Brexit will now reduce it, but unfortunately in a way which randomly cuts its export earning potential rather than by ending activities which are high risk and of questionable value. Adair Turner, the former financial regulator, and Mervyn King, the former governor, have described how we cannot simply apply sticking-plaster solutions to a financial sector suffering from fundamental instability  Perhaps the most serious issue, looking forward, relates to the vulnerability of the economy if we again face recession or depression (a period of falling production, wages and prices). The weapons to fight a crisis of this kind are heavily depleted. Interest rates are already close to zero. Government debt is already at levels which have historically occurred after times of war. The economy has been kept going by quantitative easing (the Bank of England buying government bonds to force down long-term interest rates, or purchasing assets in the hope that this will boost confidence to invest or spend). The side-effects (widening inequality of wealth) have become politically toxic.  In future, perhaps sooner than we think, the authorities may be forced into more extreme alternatives. Even if the international economic outlook is benign – which is increasingly unlikely – a disruptive Brexit could trigger a serious downturn requiring emergency action. One possibility discussed during the financial crisis, but not acted upon, would be for the government to finance its spending – either boosting spending through a tax cut, or handing out vouchers to spend, or investing in capital projects – by borrowing from the central bank. This is, in effect, “printing money”, the original “magic money tree”.  Were we to find ourselves in another major financial crisis, or a deep depression caused by other factors, such unorthodox measures would prove necessary. But it would be essential to maintain the separation between monetary policy, managed by technocrats on our behalf, and budgetary (fiscal) policy run by politicians.  If it were not, it is not difficult to see how populist politicians, if in power during the next crisis, could manufacture short-term popularity by seizing control of the Bank of England to harvest the “magic money tree”. Debasing the currency is bound, in due course, to have the same baleful consequences as it did for medieval monarchs and modern dictators. We should not be looking to the likes of Venezuela and Zimbabwe for a template for monetary policy.  All the more reason, then, to ensure that budgetary policy also operates within rules (though we can sensibly argue about what they are). The current battle between the European Commission and Italy over Italy’s chronic inability to set a sustainable budgetary policy reinforces that principle.  In Britain, the phrase “the end of austerity” has the effect, if not the intention, of conjuring up a world where budget rules can be broken or no longer apply. We should be having a proper national debate about how much the public is willing to pay in higher taxes (and what taxes) to pay for better financed public services. Liberal Democrats are clear that some rises in general taxation are justified, in particular to pay for healthcare, and that changes to the way we tax wealth are essential to fund the services and investment the public wants to see.  What makes no sense is vague appeals to have Scandinavian levels of public sector spending without any way to meet the costs in the long term – the stock in trade of the present Labour Party.  What is required are rules of the kind originally set out by Gordon Brown – and in the EU in the Maastricht conditions – requiring governments to balance their (current) budget over the economic cycle (an elusive enough concept), policed by an independent body (currently the Office for Budget Responsibility). The major unresolved controversy is what to do about public investment. In theory public investment should be able to pay for itself and therefore not add to government debt.  But in practice a lot of public investment, however worthy (like school buildings), simply adds to debt, and the Treasury treats all investment as no different from current spending (a source of some tension within the coalition). What is needed is an arms-length and professionally staffed body, perhaps constituted like the Green Investment Bank set up by the coalition, which can vet and promote public sector investment projects which the private sector will not undertake but which produce a clear, long-run economic return.  Railways and housing are obvious areas and the next generation of renewable energy. The ambition to mobilise political energy around a Green New Deal can be a central part of this investment provided it is separated from magical money.  There is a deep pool of potential infrastructure investment in pension funds. But the UK pension fund sector is very fragmented, and a proactive government should amalgamate them into bigger wealth funds to enable them to diversify in this way.  Another important role for public investment is to pump-prime private investment in some of the “left behind” areas of the UK. There is a category of projects which do not require financial subsidy but do require the “comfort” of government co-financing or enabling investment in the form of a key piece of infrastructure. The regional growth fund operated by my department during the coalition (since relegated in importance) provides a model.  Private businesses bid for investment funds. These were vetted by a politically independent team of advisers led by Michael Heseltine and then subject to a detailed economic evaluation before being signed off by ministers. In this way, substantial new investment was generated without the overheads associated with the earlier regional development agencies. Future investment could be via some hybrid of the regional growth fund and regional development agency model, seeking to devolve decision-making away from Westminster and to put a local democratic process in place to oversee it.  The big underlying issue behind budgetary (tax and spending) policy is how big the state’s share should be. The effect of a period of “austerity” under the current, Conservative, government has been to take the public spending share of the economy (including investment) from 41 per cent in 2015 to 39 per cent in 2018 (and tax revenue as a share of the economy largely unchanged from 36.2 per cent to 36.15 per cent).  Under the coalition the public spending share went from 43.75 per cent to 41 per cent (and tax from 35.2 per cent to 36.2 per cent). Despite the fierce ideological arguments around austerity, the shares haven’t greatly changed. The “small state” revolution, if that was what it was, didn’t get very far. And Britain is somewhere in the middle ground of developed economies, spending and taxing far less than some countries (France and Sweden) but more than others (the US).  Here, economically liberal and social democratic values pull in opposite directions. My instincts are that important public goods are underfunded (health, education, policing) and taxes need to be raised to pay for them. The Lib Dems “1p in the pound” on income tax is a statement of intent to move in that direction; but we have yet to see how much appetite there is for funding a much bigger state (as opposed to taxing “someone else“ (the super-rich or multinationals).  One important question, not raised since the debate around the poll tax a generation ago, and its replacement by a new form of residential property taxation, is whether the tax base should change in a fundamental way. The one, big, radical reform which is crucial is to shift tax from work (income tax and national insurance) to land.  Land taxation has long been advocated as a form of tax which is economically sensible (it taxes something in fixed supply, encouraging efficient use), which cannot be avoided by shifting overseas (as can taxation of income and profit) and is relatively efficient (requiring collection from landowners rather than vast numbers of property owners). A prototype has been designed, replacing business rates by a landowner’s levy, which could progress from there to residential land (also replacing council tax). There are administrative and political challenges, but it is the direction in which we should be travelling.  Another fundamental change, which is obscured by arguments about how to squeeze more tax out of companies, is to shift to shift tax away from equity (risk capital) and on to debt, which is currently treated as tax-deductible. The coalition recognised the need to make this change as a step to a more entrepreneurial business sector but it has not yet been followed through.  Arguments about how to divide up the spending cake, or how to realise the tax revenue to pay for it, beg the question of what government can do to help the economy become more productive and environmentally sustainable. The more successful western economies have long appreciated that a judicious mixture of competitive private enterprise and state intervention (within agreed international rules) works best. The serious issue here is not how to create a “small state” dominated by Conservative ideologues or a “big state” fantasised by Corbynistas. It is how to make government smarter and more entrepreneurial. There are three specific things which British governments should be doing more of.  The first is that while Britain has a good record in promoting, financing and safeguarding the quality of scientific research, this is not true of innovation – translating science into new products and processes through investment. UK R&D spending (especially the D) for non-military purposes lags behind that in comparator countries. Tax incentives (R&D tax credits) have helped but are wasteful of resources compared to targeted investment by government alongside the private sector.  The Catapult network launched under the coalition through Innovate UK now provides a good structure, but it needs considerably more sustained government support. Professor Mariana Mazzucato has described the model of an entrepreneurial state working alongside the private sector, which has led to breakthroughs in space exploration, the internet and pharmaceuticals and will be necessary for future success in dealing with climate change or cancer.  Second, all the evidence suggests that a more educated labour force raises the performance of the economy. Britain should aspire to be a successful knowledge-based economy – ideally, the best-educated country in the world. There have been piecemeal attempts to raise school standards, particularly in core subjects like literacy and maths, albeit at the expense of creativity. And there has been a massive expansion of higher education, even if it is often simply satisfying a perceived need for paper credentials. The priority now is to help young people prepare for a world of rapidly evolving technologies in which traditional skills and professions are becoming redundant and the premium is on adaptability: learning how to learn.  There are two glaring failings at present. The first is the lack of resources for the FE sector, both in providing basic skills for young people who do not go to university and providing progression for many more people to progress to higher apprenticeship and other advanced training. The apprenticeship levy – essentially another employee tax – has badly set back progress that was starting to be made. Raising the demand and supply of quality apprenticeships must now be a priority. One way in which this could be made a reality is to put Britain to work on a radical programme of new house building with an associated skills academy to train people in construction.  Second, adult education has been allowed to atrophy. What is needed is a much stronger commitment to lifelong learning. The concept of Individual Learning Accounts, which was briefly tried but discarded two decades ago because of fraud and lack of financial control, should be revived as a way of giving adults an incentive to keep learning and relearning. I established a commission to take forward this proposition for the Liberal Democrats. It is possible to see how such a system would work with a state-financed Individual Learning Account of – say £10,000, topped up by private and corporate contributions used to finance tuition fees whenever they are incurred and across the range of higher, further and adult education without discrimination.  I know from my experience in government the enormous barriers to creating a level playing field between the various forms of post- school learning. Snobbery and ignorance play a big part. In the civil service and in politics there is a strong bias to traditional undergraduate learning (based on some imagined variant of Oxbridge colleges) as the “gold standard”. I don’t for one moment decry the merits of universities which have recently transformed the economic outlook of many provincial towns and, at best, can do wonders for creative and critical thinking. But in a world of scarce resources they have been wrongly allowed to crowd out equally valuable institutions of learning (and virtual learning).  My final role for the state is to build on the industrial strategy developed in my period as business secretary and before and continued by my current successor. The twin ideas are to develop public-private partnerships especially in areas of high risk and uncertainty into which the private sector alone will not venture; and, a related point, to provide longer-term horizons than capital markets will normally allow. There are successful experiences to draw on in automobiles, aerospace and life sciences. Examples include the development of the next generation of motor vehicles, including electric cars, the Aerospace Growth Partnership, sponsoring new biotech companies, and the promotion of the fintech sector.  Concretely, this will involve the government establishing priorities, a process sometime pejoratively called “picking winners”. The experience of the 1970s, including Concorde and the nuclear advanced gas-cooled reactors, provided many examples of failures which absorbed and wasted a lot of scarce capital. But recent experience, including mine, has suggested some useful lessons. One is the value of co-investment, so that the state leverages private investment rather than replaces it and goes with the flow of the market rather than against it. Recent experience with automobiles, aerospace and biotech, the Green Investment Bank and the Regional Growth Fund all followed this model.  Then, there are sectors like the creative industries, professional services, construction and IT, where there isn’t a demand for large amounts of state capital but for a good framework for training, intellectual property rights, better functioning credit and equity markets and funding of early-stage innovation. The work is often unglamorous, and this is not territory for ideologues and showmen. But there are undoubtedly areas where the state will need to go where the private sector currently fears to tread – for example, renewable energy, where recent decisions on solar and tidal make a nonsense of long-term sustainable energy strategy.  There is also too trusting a belief that competition will somehow naturally emerge as part of the workings of a market economy. In reality there are powerful forces working in the opposite direction, creating and entrenching monopoly power through the use of intellectual property rights – which may be necessary to spur innovation but also acts to protect monopoly positions – and through the sheer scale of new technology platforms. The next chapter deals specifically with this challenge.  This article is extracted with thanks from Sir Vince Cable’s booklet, ‘Beyond Brexit’, a collection of essays on the future of liberalism


theindependent--2019-06-17--Iran nuclear crisis Britain ready to consider economic sanctions if terms of deal are broken

Iran nuclear crisis: Britain ready to consider economic sanctions if terms of deal are broken

Britain is ready to consider “all options available to us” to respond if Iran breaches the terms of its international nuclear deal, Downing Street has said.  Tehran has threatened to break the uranium stockpile limit set in the 2015 deal within the next 10 days, in the latest escalation of tensions with the international community.  The move comes against the backdrop of attacks on oil tankers in the Gulf of Oman, blamed by the US and Saudi Arabia on Iran, which has denied responsibility.  Jeremy Hunt, the foreign secretary, has warned of a “great risk” of a drift to war as a result of the attacks, but Labour leader Jeremy Corbyn has urged caution, arguing that there is no “credible evidence” at this point of Iran’s involvement.  Tehran’s announcement that it is ready to breach stockpile limits on low-enriched uranium, which can be used in a nuclear reactor but not an atomic bomb, appears to be an attempt to put pressure on European countries to grant the country access to international financial systems which would enable it to work round US sanctions.  Downing Street declined to spell out the detail of the options to be considered if the limit is breached. Security officials were meeting on Monday to discuss the situation.  But the Joint Comprehensive Plan of Action (JCPOA) agreed in 2015 sets out a series of steps which could be implemented in response to a failure by one party to meet its commitment, starting with diplomatic pressure and moving up to sanctions.  Theresa May’s spokesperson said: “We have been clear about our concern at Iranian plans to reduce compliance with the JCPOA.  “Should Iran cease meeting its nuclear commitments, we would then look at all options available to us.”  The spokesperson confirmed that the UK believes it is “almost certain” that last Thursday’s tanker attacks were carried out by Iran.  The UK remains in close coordination with international partners to try to find a diplomatic solution to the current tensions, he said.  “Unintended escalation would not be in any party’s interests,” said the prime minister’s spokesperson.  Asked if warships could be deployed to protect merchant shipping, he replied: “We have a number of military assets in the region, including our new naval base in Bahrain and our facility in Oman.”  But he stressed that royal navy ships currently active in the area were taking part in a pre-planned training operation which was “not related to the current situation”..  The prime minister’s spokesperson said:  “As the Foreign Office announced on Friday, the UK’s assessment has concluded that it is almost certain that the Iranian Revolutionary Guard corps attacked the tankers.  “No other state or non-state actor could plausibly have been responsible.  “These latest attacks build on a picture of destabilising behaviour and pose a serious danger to the region. That is why we have called on Iran to cease destabilising activity.”


theindependent--2019-08-29--Climate crisis UK cannot reach net zero emissions aposif ministers remain fixed on economic growt

Climate crisis: UK cannot reach net zero emissions 'if ministers remain fixed on economic growth'

The UK cannot reach net zero greenhouse gas emissions by the target of 2050 while ministers remain fixed on growth as measured by GDP, the government’s chief environment scientist has warned.  Sir Ian Boyd has made clear the scale of the challenge the UK faces to meet its own environmental goals, and said the public had little idea of the changes necessary to rein in our impact on the natural world.  People must eat less red meat, travel less and buy fewer clothes, he said, but he also warned that enormous political reassessments must be made in order for these necessary changes to happen.  Sir Ian made the comments to the BBC as he steps down from the Defra post he has held for six years.  He said: “The way we live our lives is generally not good for the environment.  “We like to consume things, but the more we consume the more we absorb the resources of the planet.  “That means we have to grow those resources or we have to mine them – and in doing that we generate waste. And consumption is going up all the time.  “(There’s) a conundrum – how do we shift ourselves from consuming? We need to do more about learning to live sustainably. We talk about sustainability but we don’t really know what it means.”  Sir Ian also called for the creation of a “net zero ministry”, which he said could work across government to vet the policies of all departments to ensure they are working to a common environmental framework. He noted this type of cross-departmental arrangement already exists with the Brexit ministry, which vets Brexit decisions.  Sir Ian said technology would be an essential element in reducing our impact on the planet, but indicated the biggest challenge would be in reducing rates of consumption.  He added: “We’ve got to reduce demand to a much greater extent than we have in the past, and if we don’t reduce demand we’re not going to reduce emissions.  “Emissions are a symptom of consumption and unless we reduce consumption we’ll not reduce emissions.”  But Josh Burke, a policy fellow at LSE’s Grantham Institute for Research told The Independent their research has indicated achieving net zero and maintaining economic growth are not mutually exclusive.  “We probably shouldn’t scrap GDP entirely, but it is a fairly blunt instrument in that it doesn’t take into account natural capital or social capital for example,” he said.  “In New Zealand they decided to augment GDP with these additional metrics, so they record natural and social capital and those are the kinds of things we can do too.”  He said the institute’s research concluded it was possible to have sustainable growth at the same time as transitioning to a low-carbon economy.  “If you look at the pace of technological change, in particular the falling cost of renewables, and lessons from past technological transformations, then it does appear possible to reduce carbon and maintain growth.”  He also warned against placing too great a burden on consumers, and instead said policy must lead the way towards net zero rather than trying to make people feel guilty about their habits.  “When it comes to consumers there will have to be some changes in lifestyle, but the emphasis that we place on the consumer in this debate is a red herring,” he said.  “With other social issues we don’t place as much emphasis on individuals for inequality or homelessness. When it comes to climate change we always think of the consumer as having a huge role to play. They have a role to play, but we should place the emphasis on the role of government, institutions and the private sector. For me they are going to deliver this change.  “Consumers will have to fly a little bit less, eat 20 per cent less red meat, and do those kinds of things, but that doesn’t mean doom and gloom. A lot of these changes will benefit them. We’re going to have to stop driving combustion engine vehicles, but ultimately the cost of that will be a lot less in the future. We’ll have to heat our homes less, but then our bills will be less, because we’ll have better insulation.  “It’s quite difficult for governments to tell consumers what to do. There’s a moral quandary in all this in that, it’s easy for us to say to people ‘don’t buy the cheap things’, but there are also lots of people who can’t afford to buy alternatives.  “Do we have a right to say to consumers who can’t really afford to buy greener alternatives to go and do so?”  Speaking about Sir Ian’s suggestion of a net zero ministry, Mr Burke said social scientists would back the creation of such a body.  “One of the problems with climate policy and with policy more generally is there’s a lack of cross-departmental collaboration and people tend to work in silos. So we fully endorse a broader working group… There is precedent for such a thing and it’d be welcome.”  The Independent contacted Defra for comment, and was given the same quote as the BBC, which despite asking does not address many of the issues raised by Sir Ian including measuring societies’ success by GDP, or whether it supported the creation of a “net zero ministry”.  A Defra spokesperson said: “The impact of climate change is clear and demands urgent action from countries around the world. The UK has already shown global leadership by becoming the first major economy to legislate for net zero emissions by 2050 – but we know there is more to do.  “That’s why we’re reforming farming policy to reward environmental actions, reviewing our food system to ensure it is more sustainable, taking steps to accelerate tree-planting and peatland restoration, and introducing a flagship Environment Bill to address the biggest environmental priorities of our age.”


theindependent--2019-11-19--As US weighs in on Iran protests, critics highlight American culpability for economic crisis

As deadly anti-government protests continue across Iran, Washington has weighed in on the crisis that was ignited by a sudden hike in fuel prices – but come under criticism for the US' part in contributing to the economic crisis.  Although Donald Trump himself has not yet reacted to the events on Twitter, some American officials have commented on the demonstrations.  The White House issued a statement saying that the United States supports the Iranian people and condemns the government.  And Secretary of State Michael Pompeo also issued messages of support for Iranian protesters and condemned any acts of violence by authorities in the Islamic Republic.  But critics say the Trump administration's message of support for the people of Iran is not genuine as the United States is partially responsible for the economic crisis they are facing.  US sanctions, combined with the Iranian government’s high levels of corruption and mismanagement, have played a key role in Iran’s economic downfall.  Assal Rad, a research fellow at the National Iranian American Council, said that the policies of the Trump administration have undercut Iranian hopes.  “The Trump administration could end its collective punishment by giving Iranians the economic relief they were promised under the JCPOA, lift sanctions and allow Iran to sell its oil. Forcing the Iranian government to return to full compliance and out of the isolationism that prevents Iranian people from being part of the international community,” Ms Rad told The Independent.  US financial and banking sanctions against Iran have impacted the import of specialised Western-made drugs into the country, contributing to a shortage of life-saving medicine for patients with special and rare diseases.  Human rights experts have been warning about the negative consequences of US economic sanctions on the lives of ordinary Iranians.  Sarah Leah Whitson, Middle East and North Africa Director at Human Rights Watch said that if Mike Pompeo really wants to help the people of Iran, he can move to end their collective punishment through sanctions that are strangling their health and economy.  "Iranians are doing what citizens around the Middle East are doing: taking their demands for effective governance to the streets," Ms Whitson told The Independent.  "The last thing they need is for the US State Department to undermine their protests by manipulating their grievances for political potshots."  The Trump administration has also been criticised for holding a double standard when it comes to authoritarian governments that are considered US allies, supporting protests only when they seem in line with US foreign policy, but not protests against authoritarian rulers with close ties to America.  "Trump and Pompeo openly support oppressive dictators all over the world. No one seriously believes they care about the rights of Iranians,” a senior Democratic Congressional aide told The Independent, adding that “the statements of our government would have a lot more credibility if we were remotely consistent in our approach.”  In a week when Donald Trump has been embroiled with continuous impeachment hearings that dominated the media, the protests in Iran have not yet made it to the top headlines of most American outlets. But as government violence increases and the death toll rises – with Amnesty reporting on Tuesday that at least 100 protesters have been killed – more attention will be directed towards Iranians.


abcnews--2019-12-20--US economic growth and consumer spending show resilience

WASHINGTON -- The U.S. economy, which only recently was flashing warning signs of a worrisome slowdown, is finishing the year in stronger shape, thanks to a resilient consumer, a healthy job market and interest rate cuts by the Federal Reserve.  The Commerce Department said Friday that the gross domestic product — the economy’s total output of goods and services — expanded at a moderate annual rate of 2.1% in the July-September quarter. A separate report showed that consumer spending grew by a solid 0.4% rate in November, the strongest gain since July, and that incomes rebounded after a weak reading in October.  The brisk pace of spending in November is a reassuring sign that consumers, who account for about 70% of economic activity, are helping the economy offset drags ranging from President Donald Trump's trade wars to a global economic slump. Many economists are forecasting that the economy is expanding at a decent 2% annual rate in the final quarter of the year.  Just over a month ago, some tracking polls had been flashing alarm that growth could slow sharply in the fourth quarter to a 0.5% annual pace or less. But since then, Trump has stepped back from imposing a new round of tariffs on billions of dollars of popular consumer goods such as cell phones made in China. And several sectors of the economy have shown signs of resilience. The housing market has rebounded, aided by three interest rate cuts this year from the Fed. Most significantly, the job market is looking healthy: In November, hiring jumped to its highest level since January, with U.S. employers adding 266,000 jobs.  ‘’The economy is still solid,” said Diane Swonk, chief economist at Grant Thornton. “What this economy has lacked in momentum, it has made up for in stamina, and the Fed gave it a shot of adrenaline this year with three rate cuts."  The government's estimate Friday that GDP grew at a 2.1% annual rate in the July-September quarter was unchanged from its previous estimate. Though the overall growth figure was unchanged, some of the individual components of GDP were revised.  Consumer spending for the quarter, for example, grew at a 3.2% annual pace, the government estimated, up from its previous estimate of 2.9% growth. The new strength was led by higher spending on personal services such as barber shops and nail salons. And housing, which had fallen for six straight quarters, posted a solid 4.6% increase in the third quarter.  On the other hand, the government revised down its estimate of business inventory restocking. Business investment was revised to show a slightly smaller 2.3% annual decline, still the second straight quarterly drop in that key category.  Economists are forecasting moderate growth in the current quarter and for at least the first three months of next year. But they say annual growth could be reduced by about one-half percentage point to 1.5% in the first quarter, reflecting Boeing's temporary production shutdown of its troubled 737 Max jetliner, before regaining that lost output later.  Though 2% annual growth is below the gains of 3%-plus growth that Trump has pledged, it is far stronger than the recession many analysts feared just a few months ago, when concerns were escalating over the tensions in the U.S.-China trade dispute and weak growth overseas.  For all of 2019, the expectation is that GDP growth will come in at 2.3%, down from the 2.9% gain of 2018, which was the best since 2015. For next year, analysts generally think growth will slow further to 1.8% as the boost from the $1.5 trillion tax cut measure passed in 2017 fades further.  The economy may be getting some help from a preliminary trade deal announced last week that should at least cool tensions between the United States and China. That announcement, along with better economic data recently, has helped lift stock markets to new highs.  Three rate cuts by the Fed this year, partly reversing four rate increases last year, have helped fuel the rebound. And a budget agreement passed this week is expected to shower billions of dollars in increased spending on the military and domestic programs in the coming year, helping to support growth.  Yet even with those gains, analysts are forecasting that growth will slow further in 2020, hurt by continued overseas weakness.  Another headwind could be the 2020 presidential election. It is expected to raise business anxiety about the course of government policies, given the sharp differences between Trump and his Democratic challengers.


activistpost--2019-07-02--Phony Economic Growth Stats Conceal Deep Problems on Main Street

We live not only in a time of fake news but also in the era of fake economic growth. The performance of the economies of the industrialized countries since 2010 is a prominent case of deceptive economic growth. This economic recovery is not the result of a strengthening of the productive forces of the economy, but is due to a massive expansion of liquidity. Central banks created a monetary avalanche that has gone mainly into the financial markets and has become a source of deception for investors. In real terms, the economy has not advanced very much since the financial crisis of 2008. The valuation of financial assets has decoupled from the real economy.  The president’s favorite indicators of prosperity such as the stock market valuation and the official unemployment rate paint a deceiving picture of the true state of the American economy. Alternative calculations of the employment data — which include long-term discouraged workers and chronically unemployed — indicate that the labor market is much slacker than the official statistics indicate. Profits recovered in the first few years after the crisis of 2008 but over the past five years, they have been flat. Stock prices, in turn, as measured by the S&P 500 Index, have risen by over 50 percent since 2012.  The recovery after the crisis of 2008 was brought about by the stimulus packages and later on by the monetary policy of “quantitative easing.” The expansion that followed does not constitute genuine economic growth. While the financial asset markets indicate wealth creation, the economy’s productive capacity tends to remain weak. Over the past ten years, the Congressional Budget Office had to lower its estimate of potential output year by year and productivity growth has stayed below the trend of the time before the crisis of 2008.  At the national and the global level, the size of the fabrication of additional central bank money since 2008 has been unprecedented. Led by the Federal Reserve, the other major central banks joined in to increase the global money supply. The balance sheets of the world’s three main central banks rose from four trillion in 2008 to fifteen trillion U.S.-dollars in 2018.  In the United States, the Federal Reserve System expanded its holding of assets from less than one trillion in 2008 to over 4.5 trillion US-dollars in 2015 until the American central bank began a policy of reducing its stock of assets in 2018 to the present level of about 3.8 trillion US-dollars (Figure 1).  Figure 1: Total Assets of the U.S. Federal Reserve Banks, 2009-2019  The point to notice here is not only what has happened but what has not. Firstly, this massive amount of liquidity creation has not led to higher price inflation and secondly, compared to this immense increase of liquidity, the expansion of the real economy has been mediocre. Both facts are interrelated. Despite an unprecedented increase in liquidity, the real economic expansion has been poor, and the price level has remained relatively stable. Both, the average real growth rate of the US economy, and the mean annual inflation rate have been less than 2 percent over the past ten years. For the euro area, the data are not very much different, and for Japan, these indicators are even worse.  The recent surge in the American economic growth rate to 3.2 percent in the first quarter of 2019 is as fake as the economic growth before when it was the result of monetary expansion. Now when the American central bank tries to shorten its balance sheet via monetary policy, fiscal policy has become expansionist with the Trump tax cuts. The fiscal stimulus has replaced the monetary stimulus. At the beginning of the year 2019, US federal debt reached over 22 trillion US-dollars and the ratio of public debt to gross domestic product surpassed the level of 105 percent since 2016 (Figure 2).  Dotted line: (RHS) Public debt ratio (Total debt in per cent of gross domestic product) Solid line: (LHS) Total federal debt. (Source: Tradingeconomics.com)  Whereas one does not know how the economy would have done in the absence of the expansionary monetary and fiscal policies, we do know that relative to the magnitude of the monetary and fiscal stimuli, the impact of the expansionary policies on economic growth and the price inflation has been modest. Now, in the mid of 2019, while the economy has not yet fully recovered, there is still a balance sheet problem and rising public debt, both of which will become severe problems when the economy heads into the next recession.  The economic policies that the authorities implemented in response to the crisis of 2008 have not been very effective. They have brought more problems instead of a solution. By pushing the interest rate down to zero, and partially into negative territory, by flooding the financial markets with liquidity, central bankers have elevated the valuation of bonds and stocks and real estate to levels that far exceed the growth of the economy and consequently the rise of salaries. This has made the monetary policymakers the prime culprits of the massive wealth disparity that has emerged over the past ten years. They have been the perpetrators behind the shift of popular sentiment that has made capitalism dubious and socialism popular.  Things will get worse when the next recession strikes. The Federal Reserve System and the other important central banks have produced an economy of Zombie companies. In an environment of extremely low interest rates, a plethora of business projects emerge that create economic activity and raise employment but will not be able to withstand higher interest rates. In the meantime, these Zombie firms suck the blood out of the healthy part of the economy. Because a return to normalcy would reveal that a large part of the economy is on artificial life support and that the recovery has been fake, the central bankers have opted for lower interest rates and governments for more deficits. Central banks and governments buy a short-lived extension of the economic expansion at the price of a bigger bust to come. These policies instigate malinvestment and deepen the misallocation. Policymakers ignore the main lesson of the crisis of 2008 that monetary and fiscal stimulus policies do not bring about a solid recovery but manufacture a phony economic growth that distorts the economy’s structure of production. Instead of a V-shaped recovery that would occur if government abstained from intervention, policymakers produce an L-shaped agony. As if a prolonged stagnation wasn’t already bad enough, the interventionists also act as the undertakers of capitalism. Policy intervention distorts the economy and drives a wedge between Wall Street and Main Street. The majority of the people do not attribute the discrepancy between the growth of financial wealth and the stagnation of the real economy to the policy of the authorities — but accuses capitalism of this evil. It is hard to find a greater paradox in current politics than that the battle cry for social justice demands more government spending and a monetary policy which ignores debt and deficits. It was exactly this kind of policy that has caused the present widespread discontent. Dr. Antony P. Mueller is a German professor of economics who currently teaches in Brazil. Write an e-mail. See his Amazon author page. This article was sourced from Mises.org Subscribe to Activist Post for truth, peace, and freedom news. Follow us on Minds, Twitter, Steemit, and SoMee. Provide, Protect and Profit from what’s coming! Get a free issue of Counter Markets today.


bbc--2019-01-15--German economic growth slowest for five years

Germany's economy grew by 1.5% last year, its slowest rate since 2013, the latest official figures show.  Figures from the Federal Statistics Office showed Europe's largest economy slowed sharply as the year wore on.  A weaker global economy and problems in the car industry, caused by new pollution standards, have been cited as contributing to the slowdown.  At the start of 2018, the German economy had been expected to grow by 1.8%. Growth was 2.2% in 2017.  Germany's economy had shrunk in the third quarter of the year, by 0.2%, with global trade disputes blamed for the contraction.  There were fears that Germany was at risk of following that with another quarter of negative growth, something that would have put the country into recession.  The statistics office has not released fourth-quarter figures yet, as it does not have enough data to give an accurate reading.  But initial calculations by independent economists suggest the economy may have grown by about 0.2% in the final three months of the year.  Reasons for slower growth last year include a slowdown in the global economy and a weaker car sector, with German consumers less willing to buy new cars amid confusion over new emission standards.  In addition, low water levels, particularly in the Rhine, affected growth by holding back movement of some goods.  So Germany probably avoided a recession last year, although further data publications might yet change that conclusion. What is clear though is that the economy hit a weak patch in the second half of last year. It's not alone. The eurozone as whole slowed markedly in the third quarter of the year. Two large economies, Germany and Italy, contracted in that period, though Spain and France both managed reasonably firm growth.  Germany, as a leading exporter, is especially exposed to the global trade climate. A slowdown in international commerce is a major part of Germany's loss of momentum and China is an important element in that story. It's Germany's third largest export market. A recent survey of German manufacturers found the steepest fall in export orders for six years and a number of firms reporting lower sales to China.  Germany's export orientation also makes it vulnerable to the tensions in global trade spilling out from the United States - the new tariffs on steel and aluminium and the conflict with China. For Germany, and the eurozone more widely, there are certainly clouds on the horizon.  Germany may have dodged a recession, but a period of slower expansion looks likely. It's worth adding that whatever other problems Germany might encounter, unemployment is currently very low.  Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the best guess was that the German economy had avoided recession, but the main story was still that the economy had lost pace, "thanks mainly to a slowdown in consumers' spending and exports".  "Looking ahead, we think consumption will pick up. Real wage growth is firm, and the recent plunge in growth of goods spending won't be sustained."


bbc--2019-02-28--US economic growth continues to slow

US economic growth continues to slow

US economic growth slowed to an annualised rate of 2.6% in the final three months of 2018, figures show.  However, the reading was ahead of expectations for a rate of between 1.8% and 2%.  The pace of growth was below the 3.4% rate seen in the third quarter thanks to a slowdown in consumer spending.  The growth figures had originally been due to be released in January, but were delayed because of the 35-day US government shutdown.  The US economy was boosted last year by a big tax cut and an increase in government spending.  Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the fourth quarter was "not a bad performance" given that the economic boost from the Trump administration's tax cuts is now fading.  For the full year, GDP grew by 2.9% - just shy of President Donald Trump's 3% target - compared with 2.2% in 2017.  Mr Shepherdson said he expected that growth in 2019 would revert to the "post-crash trend" of between 2% and 2.5%, "demonstrating that the personal tax cuts offered nothing more than a sugar high, and that the business tax cuts did nothing to lift trend growth. Though they did make shareholders richer".  Capital Economics chief US economist Paul Ashworth said he expected growth of 2.2% this year and 1.2% in 2020.  It has certainly been a significant slowdown. But that figure of 2.6% is still reasonably strong. It is actually more than most independent economists think the US can sustain over the long term. Many think there was a short-term boost from President Trump's tax cuts which is now fading.  In the coming years, the economy will face further headwinds from an ageing population. The view that long-term prospects are rather more modest is shared by policymakers at the Federal Reserve. They consider the long-run growth of the US economy is likely to be somewhere between 1.7% a year and 2.2%.  President Trump by contrast has suggested that 4% is doable, and his administration is aiming for 3%. Growth for the full year 2018 was very close to the latter figure. But sustaining it will be a serious challenge.  Consumer spending, which accounts for more than two-thirds of US economic activity, increased at an annual rate of 2.8% in the final three months of last year.  That was a slowdown from the 3.5% rate set in the previous quarter.  Recent figures showed that retail sales fell by 1.2% in December while demand for new vehicles dropped by 1% in January compared to the same month last year, with car sales particularly hard hit with a 4% drop.  Mr Ashworth said that both factors mean that "consumption growth could fall below 2%" in the first quarter of 2019.  Also, while business investment growth reached 6.2%, he said "the first quarter won't be this good".  "We already know that lower oil prices will depress mining investment, while the weakness of underlying durable goods orders points to a softer equipment showing."


breitbart--2019-10-18--China's Economic Growth Dipped Again in Third Quarter to Slowest Pace Since 1992

China’s economy slowed by more than expected in the third quarter, according to a report published Friday by China’s National Bureau of Statistics.  The true growth rate of the Chinese economy can be hard to measure. Official statistics are suspected of often being fudged to meet central government expectations.  The latest economic numbers appear to follow that pattern. China said its economy grew at a 6 percent rate in the third quarter, which happens to be exactly the government’s baseline target for full-year gross domestic product growth.  If accurate, that would be the slowest pace of growth since 1992.  Growth would have slowed by more if not for a reported recovery in industrial production and retail sales in the final month of the quarter. The boost in these sectors coincided with U.S. tariffs and Chinese retaliatory tariffs rising in September, which some China-watchers regard with a high level of skepticism.  Investment in the industrial, manufacturing, and agricultural sectors fell in September as the new tariff hit. Investment in infrastructure rose, however, likely due to Communist Party official authorizing spending to commemorate the 70th anniversary of the victory of the Communist Party in China.


cbsnews--2019-11-12--Trump touts wage growth in Economic Club of New York speech

President Donald Trump told business leaders in New York on Tuesday that he plans to continue to enact policies that will allow U.S. companies to "compete and win." U.S. manufacturers have brought back 600,000 jobs under his presidency, he said, and 7 million Americans have come off of food stamps.  "We will be pro-growth, pro-American, and more is yet to come," Mr. Trump said in a speech at the Economic Club of New York on Tuesday. "You will see things, even in this room, you will be surprised to see. We have tremendous economic potential." One surprise for the room on Tuesday: Mr. Trump said that wages for the average American worker during his presidency had risen $10,000. That was $3,000 more than the $7,000 that Trump claimed workers had gained just three weeks ago.  The claim is based on a report from a private economic research group. But according to data from the Census, median incomes in America were basically unchanged in 2018.  Mr. Trump said about $2,000 of the income gain he cited came from lower taxes. Meantime, many experts have said that the gains for average Americans from Mr. Trump's late 2017 tax cuts have been less than $1,000.  Mr. Trump also said that 10,000 factories have opened in the U.S. under his watch, adding that companies are bringing jobs back from overseas. "Many more want to, and are planning on coming back to the U.S.," he said. "I know this is true because I have said it before and no one in the media has called me out on it, and you know they love to say that Trump is lying."  Investors and businesses hoping that Mr. Trump would announce progress on closing what he has called "stage one" of a trade deal with China will be disappointed. The president gave no details of that in Tuesday's speech, merely expressing confidence that the sides would clinch an agreement soon.  "We're close," Mr. Trump said. At the same time, he said he would continue to raise tariffs on China if talks fell through, which he said remains a possibility. "We will only accept a deal if it's good for the U.S. and our workers and our great companies," Mr. Trump added.  Tariff opponents have blamed The Trump administration's ongoing trade war with China for causing the biggest slump in U.S. manufacturing since the the Great Recession.  Later this week, the administration faces a deadline on whether to raise tariffs on European Union auto imports. But Mr. Trump didn't address whether he would delay the increase. Many have been expecting him to put off new tariffs on EU autos for another six months, moving the decision closer to the 2020 election.  "They recently reported a poll that said Obama is far more popular in Germany than Trump," Trump said at the event. "He should be."  Mr. Trump credited his administration's policies with the continued U.S. economic expansion. He tweeted before the speech: "Economy is booming. Seems set to have another record day."  Mr. Trump's remarks come as the pace of U.S. economic growth has slowed to roughly 2% annually, which would be far from a record.  Financial markets rose modestly on Tuesday. The S&P 500 stock index was up nearly 0.25%, or 12 points, to 3,099, around noon. The index has never closed above 3,100.  Despite Mr. Trump's focus on the stock market, many Americans, particularly lower-income ones, do not have any money invested in stocks. Economists have long questioned the ties between the stock market and the performance of the real economy.  Still, despite fears earlier this year that a trade war could tip the economy into recession, the unemployment rate remains near record lows and the stock market near record highs. While the status of trade negotiations is unclear, the U.S. announced a preliminary deal in October that opens the door to a reduction in tariffs, which corporate leaders say are hurting business investment as well as broader economic growth.


cnbc--2019-02-26--Youre making stuff up Barney Frank says theres no way the US can sustain 3 economic growth

'You're making stuff up' — Barney Frank says there's no way the US can sustain 3% economic growth

A CNBC debate Tuesday between Democrat Barney Frank and Republican Jeb Hensarling became heated as the two former House Financial Services Committee chairmen argued over whether the tax cut championed by the GOP and President Donald Trump can keep the economy growing at 3 percent.  At one point during the "Squawk Box" exchange, they were talking over each other, and Frank broke in and said to Hensarling, "Neither one of us are the chairmen anymore. So neither one of us can tell the another to stop talking and interrupt."  Hensarling laughed in response, and then Frank continued by saying, "No one thinks we're going forward with the 3 percent."  "But you're wrong," Hensarling countered. "Three percent economic growth is simply the average of the post-war era. All we're trying to do is rid ourselves of the legacy of Obama." The Texas Republican argued that muted economic growth in the previous administration was caused by former President Barack Obama's restrictive tax and regulatory policies.  Tax cuts and deregulation under Trump will continue to boost the economy — and, in turn, will help reduce the nation's budget deficit, Hensarling said.  "You're making stuff up," Frank, who represented Massachusetts in Congress, said to Hensarling, who responded by saying: "I'm making up 3 percent economic growth?"  Frank then argued that Trump's 2017 tax reform was just a "short-term boost" to the economy that won't last long enough to help bring down the soaring deficit. "The notion that the tax cut was going to pay for itself has clearly not been the case," Frank added.  The CNBC Rapid Update, tracking gross domestic product forecast changes, pegs growth in the fourth quarter at an average of 2.1 percent. The initial look at Q4 data, delayed by the partial government shutdown, is set for release Thursday.  GDP advanced 2.2 percent in the first quarter, 4.2 percent in the second quarter, and 3.4 percent in the third quarter. Trump administration officials are hoping for 3 percent growth for all of 2018. That's a level the president has used as a yardstick of success.  Earlier in the interview, a discussion about Democratic proposals to increase taxes on the wealthy to pay for liberal initiatives like the Green New Deal drew sharp rebuke from Hensarling.  "The 1 percent make roughly 24 percent of the income but pay 40 percent of the taxes," he said, asking why they should pay more.  Frank countered by saying the power of far-left Democrats who support the Green New Deal, proposed by firebrand freshman Rep. Alexandria Ocasio-Cortez from New York, are not the mainstream of the party.  But Hensarling said Green New Deal Democrats are not outliers, pointing out that every senator who has announced a run for president against Trump in 2020 has expressed support for the idea of a Green New Deal. Ocasio-Cortez's proposal calls for generating 100 percent of the nation's power from renewable sources within 10 years.