SEE Michael Roberts Blog- Boom and then bust? https://thenextrecession.wordpress.com/2019/04/25/boom-and-then-bust/
WILL THOSE ON LOW AND MIDDLE INCOMES PAY FOR ANOTHER CAPITALIST CRISIS?
———————-——————————————————————
David McWilliams: Unfortunately, our Central Bank has unforgivably abdicated in this crisis, precisely when it was needed….Obviously, the Irish banks are overcharging…More broadly, the most important thing is to ensure that this (hopefully) once-in-a-lifetime health crisis, and the reaction to it, does not encumber our countries with huge debts that might prompt austerity in the future or prevent the State from building infrastructure and housing when this passes. If we don’t change the rules, this will happen https://wp.me/pKzXa-ua
David McWilliams; Irish Times Saturday, March 28, 2020,
When events change, we change our minds. Old rules go out the window and new ideas are embraced. What was once radical becomes mainstream and what was once mainstream becomes redundant. In a crisis, you run out of time. You can’t wait; you must act.
This week, the Department of Finance acted with remarkable speed, implementing what might be called the “Danish model”, soldering the link between employers and employees by subsidising people’s wages to the tune of 70 per cent. The civil servants are to be commended in how quickly they turned this around. It should help enormously. Hopefully, we will see results in a stabilising of the rise in unemployment.
But hope is not a strategy, and we can still choose economic hibernation over economic annihilation.
Economic hibernation is exactly what it sounds like: we are putting the economy to sleep in as gentle a way as possible in these circumstances. This means assuaging people’s fears, reassuring them that when we wake up from this trauma, there will still be an economy. The government’s intervention in subsidising wages goes a long way towards this, as it maintains income.
But “income” can disappear if “outgoings” remain high. Thus, the flip side of an income strategy should be an outgoings strategy which minimises outgoings, so that people remain solvent.
On Thursday morning, the ECB provided a clear pathway to reducing monthly mortgages. The ECB has opened up the taps and indicated that it will do whatever it takes to prevent a recession becoming a depression.
As this column noted two weeks ago, we are on our way to “helicopter money”, which is free money given to all citizens. It will take lots of taboo-breaking within central banking circles to get there, but it will happen eventually in one shape or another.
We can start by refinancing Irish mortgages and availing of the ECB’s new commitment to finance everything that the banks need.
Unfortunately, our Central Bank has unforgivably abdicated in this crisis, precisely when it was needed.
Irish banks can now borrow from the ECB and lend out that money at rates as low as 1 per cent and still make a profit
That institution – which is as critical to the economy as the Department of Finance – is failing to lead. (We will come back to this when we have more time but for now let’s focus on what’s possible).
The ECB will make finance available to the banks at minus 0.75 per cent. This means that any Irish bank can now borrow from the ECB and lend out that money at rates as low as 1 per cent and still make a profit. Think about what this can do to the mortgage market. A bank can now offer mortgages at 1 per cent. Such a bank could also offer to swap existing mortgages for this new mortgage at the 1 per cent rate.
If any or all of the Irish banks were to do this, it could be transformative and keep an additional €1.5 billion per year in ordinary people’s pockets.
The numbers are pretty straightforward. According to the Central Bank, the total amount of mortgages lent out in Ireland is €76.4 billion. On average, a rate of 2.92 per cent, say 3 per cent, is charged on these mortgages. Other Europeans pay on average 1.39 per cent for their mortgages. That’s about half the Irish rate. Ireland has by far the highest mortgage interest rate, despite being in the same currency bloc.
Obviously, the Irish banks are overcharging.
Fixed-rate mortgages are now 75 per cent of all new mortgages here, compared with 85 per cent in the rest of the euro zone. The Central Bank data indicates that the average interest rate on new fixed-rate mortgages is 2.79 per cent. In contrast, new variable-rate mortgages are at 3.31 per cent, meaning that the rate being charged to new Irish mortgage holders is well over twice that charged in the rest of Europe.
This means that both new and existing Irish mortgage holders on a mortgage of €300k pay between €230 and €260 a month more than our Italian or German neighbours.
Such savings could be achieved immediately. The ECB is begging banks to avail of free money. Imagine the banks were to do the right thing this time? In fact, the bank that goes for this now would attract huge new business as we all flock to save money, and the positive impact on such a pioneer bank’s brand would be enormous and lasting.
Now, how about backing brave?
This is just one of many transformative monetary initiatives made possible by the ECB’s “whatever it takes” policy. The Central Bank of Ireland’s lack of leadership will not be forgotten. Therefore, the Minister for Finance, as a shareholder, has to act to deploy the banks in defence of the economy and society.
These debts are being incurred to avoid deaths… the most virtuous economic initiative undertaken in our lifetimes
More broadly, the most important thing is to ensure that this (hopefully) once-in-a-lifetime health crisis, and the reaction to it, does not encumber our countries with huge debts that might prompt austerity in the future or prevent the State from building infrastructure and housing when this passes.
If we don’t change the rules, this will happen. Or worse, when interest rates go back up (as they will at some stage), we don’t find ourselves paying enormously for the “crime” of saving the lives of our neighbours.
I use the word “crime”, because there can be a bizarre “morality” lesson peddled in economics about debts, as if debts are morally suspect while credits are morally virtuous. Such thinking is unforgiveable because these debts are being incurred to avoid deaths. This is the most virtuous economic initiative undertaken in our lifetimes.
As a result, “corona debts” should not cost us anything now or in the future. Therefore, everything could be financed via 100-year, zero-interest-rate bonds that will be bought in infinite amounts by the ECB. The loan is not repaid for 100 years and, if private investors don’t want to invest, the ECB should underwrite the whole thing. These are unprecedented times that demand unprecedented moves.
Hibernation demands that we cocoon ourselves and our businesses as much as possible
The ability to the ECB to act radically now is a “reward” for decades of conservative central banking. Over the years, the ECB built up credibility as a serious institution, which is why now it has permission to unleash its awesome power: the power to print money without undermining public trust.
This permission would not be given to, for example, the central bank of Zimbabwe, which has destroyed its credibility through past delinquency. An institution builds up credibility in normal times, in order to act courageously in exceptional times.
Using this latitude, we need to totally reimagine monetary economics to arrive at the solution. The governments can then “gift” money raised by the bonds directly to people’s accounts to avoid the economy being afflicted by paralysis.
Remember, this crisis is temporary. It will pass. Hibernation demands that we cocoon ourselves and our businesses as much as possible. We do this by figuring out what’s possible, rather than defaulting to old mantras, based on what is not possible.
© 2020 irishtimes.com
—————————————————————G20 Meeting Fails to Tackle Key Issues in World Economy as New Recession Looms
Michael Roberts Blog : G20 and Covid-19 February 23, 2020 https://wp.me/pKzXa-ua
In my last post on COVID-19, I commented: “it could be a trigger for a new economic slump because the world capitalist economy has slowed to near ‘stall speed’. The US is growing at just 2% a year, Europe and Japan at just 1%; and the major so-called emerging economies of Brazil, Mexico, Turkey, Argentina, South Africa, and Russia are basically static. The huge economies of India and China have also slowed significantly in the last year and if China takes an economic hit from the disruption caused by CoVid-19, that could be a tipping point.”
The finance ministers and central bankers of the top 20 economies in the world met this weekend in Riyadh, Saudi Arabia. The G20 finance summit had a lot to ponder. First, there was the coronavirus epidemic. Would it turn into a pandemic? Would the impact of global growth, trade and investment be so severe as to tip the world economy into recession in 2020? Also, what is to be done about curbing and reducing greenhouse gas emissions with the world’s temperatures continuing to rise towards an increase above that set by the last international climate change agreement? Finally, is there nothing to be done about high and rising inequality of wealth and income and continued shift of profits by multi-nationals and rich oligarchs into ‘tax havens’?
The Saudi Arabia G20 communique provided no answers to any of these questions. At Riyadh, IMF managing director, Kristalina Georgieva, having previously announced a reduction in IMF forecasts for global growth to just 2.9%, now added a further reduction due to COVID-19. She reckoned that the epidemic will likely cut 0.1% from global economic growth to 2.8%, the lowest rate since the end of the Great Recession over ten years ago. And it would drag down growth for China’s economy to 5.6% this year from 6.0% previously forecast. “In our current baseline scenario, announced policies are implemented and China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived,” she said. But even that could be optimistic. “But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,”
French Finance Minister Bruno Le Maire said in Riyadh. “The question remains open whether it will be a V-shape with a quick recovery of the world economy, or whether it would lead to an L-shape with a persistent slowdown in world growth.” He said the V-shaped scenario was more likely.
As the ministers met, the latest data on COVID-19 suggested that China was getting the epidemic under control. It reported a sharp fall in new deaths and cases of the coronavirus, but world health officials warned it was too early to make predictions about the outbreak as new infections continued to rise in other countries. “Our biggest concern continues to be the potential for COVID-19 to spread in countries with weaker health systems,” WHO chief Tedros Adhanom Ghebreyesus said. The U.N. agency is calling for $675 million to support most vulnerable countries, he said, adding 13 countries in Africa are seen as a priority because of their links to China.
The Chinese authorities put on an optimistic air. Chen Yulu, a deputy governor of the People’s Bank of China, said policymakers had plenty of tools to support the economy, and were confident of winning the war against the epidemic. “We believe that after this epidemic is over, pent-up demand for consumption and investment will be fully released, and China’s economy will rebound swiftly,” Chen told state TV.
Other commentators are less convinced that China can recover quickly from shutting down industry, stopping tourism and keeping millions at home. Zhu Min, a former deputy managing director of the International Monetary Fund, reckoned that COVID-19 could slash US$185 billion off China’s economy in January and February. Dips in tourism and consumer spending could reduce first-quarter growth by three or four percentage points, according to Zhu Min, While online spending – particularly on education and entertainment services – would offset some of the losses, the total drain on the economy over the period could be as much as 1.38 trillion yuan, said Zhu. Based on figures from China’s National Bureau of Statistics, that would represent about 3.3 per cent of the country’s total retail sales in 2019.
Car sales, fell by 20.5 per cent year on year in January, their largest monthly dip in 15 years, according to figures from the China Passenger Car Association. And sales in the first two weeks of February fell 92 per cent from the same period of 2019, mainly due to showroom closures. Over the whole of 2020, the coronavirus epidemic could cost China 1 million car sales, or about 5 per cent of its annual total, the industry group said. “The falling consumption in the first quarter could knock down growth by three or four percentage points,” Zhu said. “We need a strong rebound, and that needs 10 times as much effort.”
Chen Wenling, chief economist at the China Centre for International Economic Exchanges, a Beijing-based think tank, said this week that even if national production returned to 80 per cent by the end of February, first-quarter growth would still be less than 4.5 per cent. By comparison, China’s economy grew by 6.4 per cent in the first three months of 2019.
What to do? At Riyadh, Japan’s answer was to call for increased government spending. Finance Minister Taro Aso called on G20 countries with ‘fiscal space’ (like Germany) to ramp up spending to help the global economy. “I told the G20 ministers that the spread of the coronavirus epidemic … could have a serious effect on the global economy,” Aso pointed out that Japan has deployed fiscal spending quite a bit, so wants other countries with fiscal room to do the same. This is ironic when it is realised that Japan’s permanent annual budget deficits do not appear to have saved the economy from dropping into recession, even before the effects of COVID-19 epidemic hit.
But don’t worry. Aso claimed that Japan continued to recovery moderately as a tight job market and rising household income offset some of the weaknesses in exports and output. “At this stage, I don’t think risks to Japan’s economy have suddenly heightened sharply.” That is wishful thinking.
As I have argued in many posts before, fiscal stimulus is likely to have a negligible effect on achieving economic recovery once a slump sets in and the capitalist sector stops investing and consumers stop spending (as much). That’s because government spending outside of welfare transfers is no more than 10% of most economies’ GDP and government investment (as opposed to spending on public services) is no more than 3% of GDP compared to 15-20% of GDP invested by the capitalist sector. It will take a huge increase in government investment to have an effect.
Moreover, the ability and willingness of governments to resort to such huge fiscal injections are limited. Gavyn Davies in the FT is sceptical: “the next global recession may result in a merging of what has traditionally been viewed as the two separate wings of macro policy, fiscal and monetary. It is a difficult question of political economy whether the central bank or the treasury is better placed to lead the design of an effective policy response in this environment. Japan has been in this position for several years and has so far failed to cut the Gordian knot. Policymakers in the US and Europe should be thinking well in advance about how they can co-operate both internationally and domestically to produce a better outcome. There is no sign of this happening yet.”
Perhaps only one country is capable to doing that. Given the size of the state sector and government control in China, a fiscal boost can have much more effect, as it did during the 2008-9 Great Recession, when China continued to grow while virtually every other economy went into a slump or slowed drastically. The Chinese government is ready to spend and invest big time to turn things round once the virus epidemic fades.
Even so, if China’s growth slows sharply for a couple of quarters, that will only add to the woes of the major economies. The latest economic activity indexes for the major advanced capitalist economies make sombre reading. Japan’s business activity indexes in February showed a significant fall below the stasis level of 50. Japan’s manufacturing PMI dropped to 47.6 in February 2020 from 48.8 in the previous month. The latest reading was the steepest pace of contraction in the manufacturing sector since December 2012. And the services PMI declined to 46.7 in February from 51.0 in the previous month. This was the steepest contraction in the service sector since April 2014, So the overall index fell to 47.0 from 50.1 in January. Again, this was the steepest contraction in private sector activity since April 2014. Japan is clearly in a slump.
Eurozone private sector activity showed a slight improvement in February. The overall ‘composite’ PMI in the Euro Area increased to 51.6 in February from 51.3 in January. This slight improvement was due mainly to German manufacturing, which is still contracting – but at a slower pace. The Eurozone is still growing, but at a snail’s pace.
The UK’s manufacturing activity in February jumped into mildly positive territory, up to 51.9 from 50.0 in January. This was a ten-month high, which is not saying much as the index was over 55 three years ago. The services sector index weakened a little in February but still showed modest growth at 53.3. So the overall ‘composite’ index was unchanged at 53.3. That means the UK economy is growing but very modestly in the first quarter of 2020.
But the big shocker was the US. The US economic activity indicator went below 50, signalling a contraction in the economy for the first time since the PMI survey began in 2014. The overall ‘composite’ indicator fell to 49.6 in February from 53.3 in January. The manufacturing index also fell to 50.8 from 51.5 in January. But the real bad news was the fall in the larger services sector, which dropped to 49.4 from 53.4. It seems that the US is joining Japan and the Eurozone in stagnating or even contracting in Q1 2020, and China has yet to report on the full economic impact of the coronavirus outbreak.
Other G20 economies are also on the cusp. Australia’s index was below 50 in February; South Africa too. We await data on the others.
In my last post on COVID-19, I commented: “it could be a trigger for a new economic slump because the world capitalist economy has slowed to near ‘stall speed’. The US is growing at just 2% a year, Europe and Japan at just 1%; and the major so-called emerging economies of Brazil, Mexico, Turkey, Argentina, South Africa, and Russia are basically static. The huge economies of India and China have also slowed significantly in the last year and if China takes an economic hit from the disruption caused by 2019-nCoV, that could be a tipping point.”
Up to now, the world’s stock markets have ignored this risk, convinced that zero or negative interest rates for borrowing and speculating would continue, thanks to the US Federal Reserve, and also in expecting the epidemic to dissipate by the end of this current quarter, so the ‘business as usual’ can be resumed. But with the outbreak picking up outside China and the likely slow economic recovery by China, the stock fantasists may be overoptimistic. And remember, global corporate profits are stagnant along with business investment, the main cause of the global slowdown.
As for the other issues discussed by the G20 ministers: climate change, inequality and tax havens, forget it. Nothing was agreed. For the first time, the final G20 communique included a reference to climate change “to examine the implications of climate change on financial stability”. It was ok to worry about the impact on financial assets and stock markets, but the US vetoed any mention of the impact on the world economy and people.
Nothing happened on inequality because the European countries could not agree on a common tax strategy on global tax avoidance.
Posted in capitalism, economics | 5 Comments »
———————————————————–Coronavirus is not the main cause, it is just the trigger for the new world economic crash-Paddy Healy
From Matt Cooper Sunday Business Post, 1st March, 2020 https://wp.me/pKzXa-ua
Coronavirus fears weren’t only factor behind rush to sell shares
Investors worldwide belatedly realised last week that vast quantities of cheap money had pushed the valuation of many companies far too high.
Stock market values have been too high for too long. Fears of the spread of Covid-19 was just one of a number of factors that led to the widespread sale of shares over the last week.
On markets all over the world, including Wall Street, there was a belated realisation by investors that a wall of cheap money had pushed the valuations of many companies way too high and that was even before this crisis.
It was crazy that global equities climbed more than 3 per cent in February – before the turn came last Friday week – and that cheerleaders in the US were getting ‘Dow 30,000’ t-shirts and caps printed. But that’s what happens when deposits in the bank earn almost nothing and the yields on government bonds are at near historically low levels. The money goes to other major asset classes, such as equities and property instead, and such is the weight of this money chasing scarce assets that they get overvalued. It happens in every cycle but this era has been made worse by the length of time the low interest rate environment has persisted.
Just before the turn came, the US broker Morgan Stanley noted publicly that in the downturn phase of a typical economic cycle, investment-grade debt beats junk, defensive stocks do better than economically sensitive ones, large-cap stocks outpace smaller ones, US equities outrun global markets, and precious metals do better than other commodities. It said all of those conditions have been in place for almost a year. It meant that the correction was inevitable.
There has been a form of silent collusion among investors not to start the selling that was needed. It took the Coronavirus to give the system an overdue shock.
Blind optimism, or even wishful thinking, meant that people thought the epidemic would be contained in China and that the Chinese economy would only suffer for one quarter. That didn’t take into account the obvious impact on supply chains that depend on China, or the fact that China accounts for about 20 per cent of global gross domestic product. In 2003 at the time of SARS it was just 4 per cent.
The shakeout may only be starting.
——————————————————————–
“Stakeholder Capitalism” in Davos–From Michael Roberts, Marxist Economist
And then there is the state of the world economy itself. While ‘shareholder capitalism’ booms, with stock markets at record highs, ‘stakeholder capitalism’ is struggling. At Davos, the IMF delivered its report on the prospects for the world economy in 2020. Chief economist IMF chief economist Gita Gopinath announced a reduction in its growth forecasts for 2020 and 2021 from the previous October estimate, while IMF boss Kristalina Georgieva warned that the global economy is at risk of a return to the Great Depression of the 1930s. Georgieva said the current world economy could be likened to the “roaring 1920s” that culminated in the great market crash of 1929. “Rising inequality and ‘increased uncertainty’ caused by the climate emergency and trade wars was “reminiscent of the early part of the 20th century – when the twin forces of technology and integration led to the first gilded age, the roaring 20s, and, ultimately, financial disaster.”
“At the same time as Schwab and others at Davos were talking about the mega corporations taking a lead in solving the world social problems and not just making money, US president Donald Trump turned up to tell the elite gathered there that it was great news that stock markets were hitting new highs, that capitalism was doing very well thank you, and there is no need for pessimism or talk about environmental crises or rising inequality.
At the same time that Schwab issued his Davos Manifesto, Oxfam released its annual report on global inequality. https://wp.me/pKzXa-ua According to Oxfam, the world’s 2153 billionaires now have more wealth than 4.6bn people who make up 60% of the world’s population. The 22 richest men in the world now have more wealth than all the women in Africa. Women and girls put in 12.5 billion hours of unpaid care work each and every day —a contribution to the global economy of at least $10.8 trillion a year, more than three times the size of the global tech industry. Getting the richest one percent to pay just 0.5 percent extra tax on their wealth over the next 10 years would equal the investment needed to create 117 million jobs in sectors such as elderly and childcare, education and health.
So much for corporate leadership in reducing inequality. And it’s same story with climate change. Average world temperatures were at record levels in 2019; and bush fires raged in extreme heat in Australia, while floods enveloped Indonesia. But the United Nations report on the current emissions gap concluded that “there is no sign of GHG emissions peaking in the next few years; every year of postponed peaking means that deeper and faster cuts will be required. By 2030, emissions would need to be 25 per cent and 55 per cent lower than in 2018 to put the world on the least-cost pathway to limiting global warming to below 2˚C and 1.5°C respectively.” As Greta Thunberg said at Davos, there is a lot of talk about dealing with climate change but little effective action.
And then there is the state of the world economy itself. While ‘shareholder capitalism’ booms, with stock markets at record highs, ‘stakeholder capitalism’ is struggling. At Davos, the IMF delivered its report on the prospects for the world economy in 2020. Chief economist IMF chief economist Gita Gopinath announced a reduction in its growth forecasts for 2020 and 2021 from the previous October estimate, while IMF boss Kristalina Georgieva warned that the global economy is at risk of a return to the Great Depression of the 1930s. Georgieva said the current world economy could be likened to the “roaring 1920s” that culminated in the great market crash of 1929. “Rising inequality and ‘increased uncertainty’ caused by the climate emergency and trade wars was “reminiscent of the early part of the 20th century – when the twin forces of technology and integration led to the first gilded age, the roaring 20s, and, ultimately, financial disaster.”
What was her answer? A more inclusive financial sector! “Financial services are primarily a good thing. Developing economies need more finance to give everyone a chance to succeed. While fiscal policy remains a potent tool, we cannot overlook financial sector policies. If we do, we may find that the 2020s are all too similar to the 1920s.” But, “It’s just that too much of a good thing can turn into a bad thing. Excessive financial deepening and financial crisis can fuel inequality. So we need to find the right balance between too much and too little.”
None of this inspires confidence in the likely success of ‘stakeholder capitalism’. No wonder a global survey released just before Davos found that over half of respondents believe capitalism in its current form does “more harm than good.” That belief was expressed by a majority across age group, gender, and income level divides. In fact, there were just six markets where the majority did not agree—Australia, Canada, the U.S., South Korea, Hong Kong, and Japan. Strongest support for the statement was found in Thailand (75 percent) and the lowest level in Japan (35 percent). In the U.S., just 47 percent agreed with the statement.
The survey also found that 48 percent of respondents believe the system is failing them, while just 18 percent believe it is working for them. Seventy-eight percent agree that “elites are getting richer while regular people struggle to pay their bills.” And in 15 of 28 markets, the majority are pessimistic about their financial future, with most believing they will not be better off in five years’ time than they are today.
Not much support for capitalism, whether shareholder or stakeholder.————————————————————————————– Colm McCarthy, Sunday Independent: “This Lucky Period Will Come to an End!!
Things have been going very well indeed – 2020 will mark seven straight years of strong economic recovery in Ireland.” https://wp.me/pKzXa-ua
History teaches that this lucky period will come to an end, and last Thursday’s decisions from the ECB should be interpreted as a warning. If it is not Brexit, it will be something else – troubles in Italy, Trump’s trade wars, an international attack on alleged havens for corporate tax avoidance – take your pick.
But McCarthy,As Usual, Advocates Continued Austerity not Taxing The Super-Rich
Colm McCarthy: ‘We cannot blame Brexit alone for the pressing need to balance our books’ Colm McCarthy, September 15 2019
As public debt marches on, Paschal Donohoe may count the cost of past budget generosity, writes Colm McCarthy
Paschal Donohoe will deliver something of a non-budget on Tuesday, October 8. There will be no reductions in direct taxation and virtually no increases in pensions and other social transfers. The spur for the minister’s caution is the risk of a no-deal Brexit.
It is a great pity that Mr Donohoe did not take the opportunity to do so little on his three previous outings. When he delivered his first budget, on October 11, 2016, a pattern was set which he has followed each year since, and but for the Brexit threat, would follow again.
The pattern has exonerated spending overshoots, notably in the Department of Health. The offenders are not merely forgiven but rewarded, as the minister augments the departmental allocation for the future.
There has also been an annual round of reliefs on direct taxes and increased rates of payment on pensions and other social transfers. Despite strong underlying growth in tax revenues and a bonanza in receipts from corporation tax, these expansionary budgets ensured that the economic recovery has yet to produce an interruption to the onward march of public debt.
Each budget has disappointed the legions of lobbyists for lower taxes and higher spending and has drawn denunciations for stinginess from the Opposition benches.
The minister’s failure to promise across-the-board social welfare increases this time round inspired an over-excited headline-writer in the Irish Times last Friday to proclaim ”Brexit cuts to hit social welfare payments” – a measure of the expectations induced by earlier Donohoe budgets.
The ungrateful public has forgotten the minister’s inadequate generosity within weeks. More importantly he has also disappointed the Fiscal Advisory Council, an independent panel of experts established to help avoid mismanagement of the public finances.
The fiscal council was established informally in 2011 and became a statutory body under the terms of the Fiscal Responsibility Act in 2012. The title chosen by the legislators for the Act is revealing. There is an implicit admission that what had gone before was less than responsible.
In the late 1980s, careless budget policies pursued by successive governments for more than a decade precipitated a public finance crisis and a painful austerity correction. The loss of sovereignty involved in resort to the IMF was avoided on that occasion but 20 years later another bout of fiscal irresponsibility, supported on this occasion by reckless bank management and the collapse of the entire banking system, produced an even greater calamity.
This time the fiscal correction came too late, the Government could no longer finance itself and was forced to rely on the IMF and other official lenders for the first time since independence.
Over the last few weeks, the outgoing Central Bank governor, Philip Lane, his predecessor Patrick Honohan, and on Wednesday the fiscal council in its pre-budget report, have been reprising the facts of economic life for a small economy carrying a high debt burden.
The capacity to borrow is uncertain, things can go wrong in the sovereign debt markets quickly, and there is a continuing risk of being forced into an untimely policy of contractionary budgets.
Even when budget balance has been achieved, the mountain of inherited debt must be re-borrowed as some of it matures each year and the credit worthiness of the over-borrowed state is always contingent.
In recent years, the European Central Bank has been the single largest purchaser of government debt in Europe, driving down official interest rates and feeding complacency where it is least advisable.
This policy is highly unusual and should have been abandoned by now.
It was renewed by the ECB at its meeting in Frankfurt last Thursday and will quite likely remain in place for another several years, so there will be at least one willing supporter of the market for Irish debt. But the ECB resumed this policy because of the weak performance of the European and world economies and the continuing frailty of the eurozone banking system. It is simultaneously a source of relief and a piece of bad news.
The architecture of Europe’s common currency area has been improved but not fundamentally reformed since the financial crisis. There is inadequate capacity to handle a descent into crisis should a sizeable eurozone member get into trouble.
The most likely candidate is Italy, whose outstanding government debt, the largest in the zone, would overwhelm the system should the holders, domestic or foreign, decide to unload. There could be a re-run of the European sovereign bond meltdown of 2012 in far less favourable circumstances and the long-term durability of the common currency is not assured.
The fiscal council has focused on specifically Irish concerns, especially the reliance in recent years on buoyant but unreliable revenues from corporate taxes.
The charge sheet is straightforward: expenditure control has been weak but unexpected revenues have come to the rescue, creating the appearance of a safer budget policy than is merited.
If the extra revenues could be relied upon, and if the inherited debt pile was lower, there would be fewer reasons to worry about Brexit or the other uncertainties which abound. The current complacency echoes the satisfaction expressed so often during the bubble period when the budget appeared to be in balance but the revenue base, driven by transitory real estate and other taxes, collapsed quickly enough – with the assistance of the bust banking system – to destroy the solvency of the State.
This time the banks are smaller and under proper supervision, but the debt load is far higher and the vulnerability to uncertain tax revenues has been recreated.
There is no economic orthodoxy which says that governments should always aim for budget balance or that government debt is a badge of dishonour. The orthodoxy is the following: for a small and indebted economy, the risk of an involuntary resort to austerity, when the economy is already weak, is ever-present.
Holders of government debt, and future recruits, are volunteers, including the central bank in Frankfurt. If untimely budget tightening, austerity that deepens a recession, is to be avoided, there is a price to pay.
That price is cautious budget policy when things are going well, and things have been going very well indeed – 2020 will mark seven straight years of strong economic recovery in Ireland.
History teaches that this lucky period will come to an end, and last Thursday’s decisions from the ECB should be interpreted as a warning. If it is not Brexit, it will be something else – troubles in Italy, Trump’s trade wars, an international attack on alleged havens for corporate tax avoidance – take your pick.
Politicians in countries burdened with heavy debts are conscious that a few years of caution will principally benefit their successors, and that their own efforts to chip away at the debt overhang will not yield short-term applause.
It is tempting to ignore the prophets of doom. But the economic Cassandras in the Irish Central Bank, the fiscal council and the various external agencies preaching caution are not doing it for fun.
They will be encouraged that Cassandra was gifted but foolishly ignored. The princess of Troy enjoyed the priceless talent of true prophecy but was cursed by the gods.
She was not believed, and Troy was destroyed.
—————————————————————-
Trade wars ‘risk a global slump’
Threats: Joachim Lang , Head of the BDI(German Industry Federation) warned of a potential global recession
David Chance (Former Reuters Economics Editor for the Americas, overseeing coverage of the Federal Reserve as it managed the post-crisis recovery, the US economy and President Trump’s trade wars.) September 7 2019 https://wp.me/pKzXa-ua
The head of Germany’s powerful industry association lashed out at Brexit and trade protectionism in the US and China in a Dublin speech yesterday, saying they risked tipping the world into recession.
The speech by Joachim Lang came hard on the heels of data that showed German manufacturing output had fallen by 0.6pc in July from June, largely thanks to a collapse in car production, which is 20pc below its 2017 peak.
“The conventional assumption of a return to higher dynamism next year assumes away Trump, Johnson, Xi Jinping and other risks,” Dr Lang, the director-general of the Federation of German Industries (BDI), said.
“In fact, Europe will find itself in recession next year if a hard Brexit takes place, and in a slow-growth situation if it can be avoided,” he told the Institute of International and European Affairs.
Dr Lang, who said the BDI fully supports the backstop, added that the issue of president Donald Trump and Mr Xi’s protectionism, as well as Boris Johnson’s hard Brexit threat, marked the first time since the Second World War a recession had been “manufactured in Washington DC and London”.
Germany, the largest economy in the European Union, is poised for a contraction in the third quarter of the year, setting it up for a technical recession, something Britain is expected to avoid despite the self-inflicted wounds of Brexit.
Most economists say that the malaise in Germany extends far beyond the trade wars and global economy, and that its metal-bashing economic model is outdated and in need of deep structural reforms after a decade in which its exports have piggy-backed on strong US and Chinese growth, a weak euro and cheap money.
Dr Lang said that proposals by the British government for regulatory divergence within the terms of a trade deal were a non-starter, a view that represents official German government policy.
“If we establish separate rule books in one single market, we create a double standard,” he said.
“Again, a policy that lets goods and services flow into our market without any checks will put the level playing field at risk. Such policy is unsustainable.”
Most projections show that Ireland will be harder hit by a no-deal Brexit than the UK, in terms of economic impact.
The Central Bank of Ireland says that a hard Brexit could crater growth here, cutting it from a projected 4pc next year to zero.
Germany will also feel the pain, especially as the UK is a lucrative export market for the likes of car maker BMW.
————————————————————Trade Wars Could Lead to World Wide Recession-Irish Examiner
By Eamonn Quinn, Business Correspondent, Irish Examiner, Thursday, August 15, 2019
Global markets appear to have called time on the dangerous game of hardball US president Donald Trump is playing with China, as a plunge in shares, government bond yields, and the price of oil signalled his trade wars could lead to world recession. https://wp.me/pKzXa-ua
The selloff was sparked after growing evidence that Germany was heading into recession later this year as new figures confirmed its key manufacturing exports have slowed dramatically, and data suggested the output of Chinese factories, which make everything from iPhones to car parts for the world’s consumers, was also slowing sharply because of the trade wars.
Stockmarket benchmarks plunged. In the US, the S&P 500 fell 2.9%, with the Dow Jones and Nasdaq down 3%, the Ftse-100 in London fell 1.4%, and the Cac-40 in Paris and the Dax in Frankfurt slid 2%, while the price of Brent crude fell 4.4% to $58.62 a barrel.
Learn more
Fears were also raised as a so-called inversion of government bond yields around the world also flashed red for impending global recession, or a sharp slowdown in US economic growth, said Irish experts.
Edgar Morgenroth, professor at the DCU Business School, said Mr Trump’s tariff war with China, which was designed to secure his re-election next year, could backfire as he plunges the world into recession after badly miscalculating the strength of the Chinese government to sit it out until US election day, in November 2020.
He could lose the election by putting the world into recession. He thinks he’s got all the cards [with China]. He doesn’t.
Declan Jordan at Cork University Business School said he believes the world will avoid a recession but that the growth of the US economy will nonetheless slow to a “sluggish” rate, undermining Mr Trump’s re-election bid.
“I don’t think he is clever enough to pull the US economy back,” he said.
A wide range of Irish shares, including the banks which have already been hard hit by fears of the harm a crash-out Brexit will inflict on the Irish and British economies, were hammered again, and Irish travel shares lost ground.
AIB lost 5.5% of its value; Permanent TSB shares fell 4.5%; and Bank of Ireland shed 1.25%. Hotels group Dalata fell 4.5%; Ryanair fell 2%; and Irish Ferries-owner ICG lost 1.7%. Irish-owned multinationals, including packaging firm Smurfit Kappa and building materials firm CRH, which would be vulnerable to any world slowdown, fell 1.6% and 2%.
“The market it seems has finally lost patience with the president,” said Chris Beauchamp, chief market analyst at online broker IG.
What had seemed so promising 24 hours ago has been ‘trumped’ by the yield curve inversion and poor economic data from Germany and China. Investors continue to pull money from equity funds, with the move exacerbated by the selling on inversion headlines.
“Perhaps the big worry is that there seems to be no overarching plan behind the president’s actions — if there was a plan, with a definable end-game, then investors might be prepared to be patient, but the Trump administration’s ad-hoc approach suggests the chaos will continue, and points towards an absence of global co-ordination to any sustained downturn, since the US is busily burning its bridges with key trading partners.”
Mr Morgenroth said Mr Trump’s battles with China and Europe have been naive, because China and the EU have responded in the past year by targeting tariff sanctions at US states which he must secure to win in 2020.
Paul Ashworth, chief US economist at Capital Economics, said the inversion of yields on US bond markets and stocks selloff had raised the chance of a US recession.
“With the notable exception of 1980, every recession in the past 50 years was preceded or accompanied by a sizeable selloff in equities.”
However, he added: “We still anticipate a modest economic downturn rather than a recession.”
—————————————————————–The only reason that Government is not ending the hospital trolley and housing crises,providing pay restoration etc is that it refuses to tax the financial assets of the rich!
According to Figures Supplied By Central Bank, the richest 10% of Irish Resident Financial Asset Holders( shares, financial investments and deposits of individuals) Now Have 50 Billion Euro MORE than at PEAK BOOM LEVEL in 2006. Tax exiles Gained AT LEAST AS MUCH AGAIN! There is no Tax on Financial Assets! DIRT is a tax on INCOME from Assets!
Eddie Casey, Chief Economist at Fiscal Advisory Council Has pointed out that extra sustainable taxation can be used to fund increases in public spending within EU rules
The restriction only applies to Budget Deficits
see article below
———————————————————–
Most Politicians and Commentators Suggest That The Only Way to Introduce Prudent State Budgets is to Restrict or Cut Public Spending- NOT SO SAYS CHIEF ECONOMIST AT FISCAL ADVISORY COUNCIL
VERY VERY IMPORTANT OPINION!!!
Public Finances Policy is Drifting into a Storm
Eddie Casey, Chief Economist at Irish Fiscal Advisory Council, Sunday Business Post, Jun 16, 2019 https://wp.me/pKzXa-ua
Key Points:“That is not to say that the government has its hands tied. If it wants to do more (spending and investment), then it should simply fund these in a sustainable way. This could be done by introducing other measures to raise revenues.”
Fast forward to 2018 and the government instead found itself with double the corporation tax receipts it expected (€10 billion) and a far lower annual interest bill (€5 billion).
Despite these tailwinds — a yearly boost of almost €9 billion — it still fell short of its targeted budget surplus for 2018 by half a billion. How this happened should not be a surprise to anyone who has witnessed Irish budgetary policy as practised.”
When it comes to budget plans, the government seems happy to simply stay afloat when it should be taking advantage of favourable winds ahead of turbulent times
Article as written:
Think of the government’s budget as a ship. In 2008, a huge tear appeared in the hull. Property bubble taxes flowed away. Urgent supports for unemployment began to stream out. And sporadic bank supports pierced the vessel further, leaving it in critical condition.
From 2008 to 2015, governments tried to repair the damage at great cost. Emergency lenders kept things afloat, and this bought time for governments to make repairs gradually rather than in haste.
Yet from 2015, with the worst seemingly over, something happened. Tools were downed, repairs stopped and conditions improved. Repairs were largely patchwork and the ship’s integrity was low. But the favourable winds meant that policymakers could draw breath.
This is where we have found ourselves since 2015.
To understand why Ireland’s most recent post-crisis trajectory could be characterised as adrift, let’s look back at earlier plans.
In 2014, the government charted a course for the public finances that looked very different to where we are now headed. Unveiling Budget 2015, the projections suggested that, come 2018, it could expect two things. It would have €5 billion of corporation tax receipts to play with each year, and the burden of debt built up in previous years would mean yearly interest costs of about €8.5 billion.
Fast forward to 2018 and the government instead found itself with double the corporation tax receipts it expected (€10 billion) and a far lower annual interest bill (€5 billion).
Despite these tailwinds — a yearly boost of almost €9 billion — it still fell short of its targeted budget surplus for 2018 by half a billion. How this happened should not be a surprise to anyone who has witnessed Irish budgetary policy as practised.
The reason, of course, is procyclicality. Spending plans have risen rapidly as conditions have improved. Even within the year — in between budgets — plans are being loosened further. A pattern of repeated within-year slippages has seen some €3.5 billion of spending increases over and above the increases outlined in each budget day package.
In the past 30 years, there are only a few years when policy acted to support the economy in bad times or to cool it in good times. Instead, Irish governments have tended to overheat the economy in good times before worsening things in bad times: cutting back spending and raising taxes when support is most needed.
There are good reasons to be optimistic. The domestic economy has been growing strongly since 2013; migration flows are again adding to the population; and the CSO is showing unemployment rates at 4.4 per cent. In the past two decades, unemployment rates have only once touched lower than this on a sustained basis. Even hourly wages — slow to respond after the crisis — have begun to accelerate, and official forecasts point to further increases in coming years.
But there are also reasons to be concerned, especially on the budgetary front. Even recognising the large cash reserves built up by the state, Ireland’s net debt burden stands out as the fifth highest in the OECD at 92 per cent of gross national income (GNI). The pattern of loosening budget plans every year has resulted in more persistent deficits being run. There is now only a very small surplus compared to what might have been. This has left debt on a slower downward path and the state more exposed to external shocks.
Many shocks are brewing on the horizon. Two worth thinking about very carefully are the concentration of corporation tax receipts in a handful of companies and, of course, Brexit.
Some €3 billion to €6 billion of yearly corporation tax receipts are “excess”. By that, the Fiscal Council means they are above what can be explained by the economy’s underlying performance, historical norms and international evidence. This is very worrying. Revenue data shows that, of the roughly 55,000 companies in Ireland, just ten pay almost half of the annual €10 billion corporation tax raised. The state relies on these receipts to fund public services and income supports.
As well as that, corporation tax has tended to be volatile and procyclical (here in good times, not so much in bad times). It is clearly not a tax you would want to rely on, but the government now finds itself with almost one in every five euro of tax coming from this tax.
Brexit. It seems like not much more can be said about this, but there are further reasons for concern. The Fiscal Council has taken the Economic and Social Research Institute’s and the Central Bank’s best attempts to model a disorderly exit of Britain from the EU and married this with its own fiscal models. The results show that — at best — a disorderly Brexit would mean debt-to-GNI ratios stagnating at high levels in the years to come.
At worst, the results show that debt ratios would begin to rise again (to levels over 110 per cent).
This would make Ireland’s debt ratio look more like Italy’s, where lenders are showing hesitancy to facilitate further borrowing. Trade-offs here would be unpleasant. Just to keep debt from rising indefinitely could require a return to spending cutbacks and tax increases.
A return to rising debt ratios, poorer creditworthiness and the need for cutbacks is avoidable. To dodge it, the government should stick to its plans. This would mean a Budget 2020 package amounting to €2.8 billion.
Much of this is already earmarked for higher public investment, public sector pay, supports for a growing and ageing population, and some assumed tax cuts in 2020. Public investment alone is planned to more than double from its level six years ago (€8 billion in 2020 as compared to €3.5 billion in 2013).
This would mean minimal new tax and spending measures on budget day, taking into account previous announcements.
That is not to say that the government has its hands tied. If it wants to do more, then it should simply fund these in a sustainable way. This could be done by introducing other measures to raise revenues.
Alternatively, it could be done by scaling back spending increases and tax cuts elsewhere.
Charting a ship’s course into broadly safe waters is to be welcomed. But the current favourable winds should be moving us there faster. Instead, the government has allowed things to drift back towards a familiar course even as a storm looms. The government should not let this drift continue.
Eddie Casey is chief economist at the Irish Fiscal Advisory Council
————————————————————–Irish Times,June 14, 2019,- Warning the Economy is Caught between Overheating and Brexit Slowdown-State Chief Economist
The Irish State’s Chief Economist has said overheating could transform rapidly into “underheating” as a result of a cyclical downturn internationally, made worse by Brexit and trade tensions between the US and China. https://wp.me/pKzXa-ua
Eoin Burke-Kennedy Irish Times Friday, June 14, 2019,
The Irish economy is on a knife-edge, poised between “overheating” and a major Brexit-related downturn, the State’s chief economist has warned.
John McCarthy described the situation as “extraordinarily complex” and uncertain, saying it made forming budgetary policy extremely difficult.
He said overheating could transform rapidly into “underheating” as a result of a cyclical downturn internationally, made worse by Brexit and trade tensions between the US and China.
Mr McCarthy was speaking at a budget conference hosted by the Economic and Social Research Institute (ESRI) .
“At the moment we’re on the verge of overheating, the economy is at full employment, the output gap is probably moving into positive territory, wages are beginning to pick up,” he said, adding that this situation could change very quickly.
“So we could rapidly go from an overheating situation right now to underheating in six months’ time if you get some of these issues beginning to happen,” said Mr McCarthy.
This would have implications for the Government’s current budgetary stance and Budget 2020, which is due to be presented just before the UK’s scheduled exit from the EU on October 31st.
While economists typically advocate taking money out of the economy in the case of overheating, usually in the form of tax rises or spending cuts, the opposite is true in the case of a severe shock, with governments then encouraged to boost demand through tax cuts and/or increased spending.
Stimulus
Mr McCarthy said there might be a role for “discretionary policy to support the economy” in the event of a hard Brexit, but declined to specify the form this should take.
Nonetheless, he said, the stimulus would have to be targeted to the sectors most exposed, and would have to be temporary “because something like Brexit is a permanent structural change to the economy”. This would mean any stimulus could not be supported indefinitely.
The Department of Finance believes that economic growth in the Republic could be reduced by over 4 per cent from the current projections in the event of a hard Brexit, with unemployment rising by two percentage points. However, some economists believe this underestimates the likely impact.
In 2007 the Irish economy was overheating, with wages and prices rising at unsustainable rate, only to be overtaken by the major global downturn as a result of the financial crisis.
“What’s different between then and now is that now we know things are coming down the line. We all know Brexit will happen at some stage, nobody ever saw the global financial crisis, hence we’ve no excuse,” said Mr McCarthy.
Overruns
The Department of Finance came under fire again this week from the Irish Fiscal Advisory Council (Ifac), which claimed it was failing to deal with persistent budget overruns in health while using potentially temporary corporation tax receipts to paper over the cracks.
The fiscal watchdog also warned that the department and the ESRI had jointly underestimated the impact of a hard Brexit on the public finances.
© 2019 irishtimes.com
————————————————————– Even Eddie Hobbs Worried About New Recession !!!!
Eddie Hobbs: Is a recession looming – that’s the multi billion dollar question?
By Eddie Hobbs Irish Examiner June 12, 2019 https://wp.me/pKzXa-ua
Investors in sovereign credit (state Bonds etc) are worried that a recession is looming over the horizon. This is why the (state) bond market throughout the world is flashing red, long term rates fell below short term, inverting the normal upward slope of the bond curve.
You’ll understand why this is important when you consider that the last two times inversions happened on this scale was just before the dot.com burst and the global financial crisis……
Central Banks short term fix has become open-ended. Risk asset prices, property, shares, corporate credit, private equity, it is all propped up and extended by so-called quantitative easing and money printing operations. Ten years after it kicked off, the danger zone has moved from housing debt to national debt.
https://www.irishexaminer.com/breakingnews/views/analysis/eddie-hobbs-is-a-recession-looming–thats-the-multi-billion-dollar-question-930383.html
—————————————————————————————————————————————–Michael Roberts-Stock markets may be booming in North America but economic prosperity in many parts of the world is disappearing like water in a desert. And in some parts, a sand storm is fast approaching- South Korea, Turkey, Argentina, Pakistan
Trend real (World) GDP growth and business investment remains well down from the rate before 2007
This financial market rally is founded on the decision of many central banks to hold their policy interest rates at very low levels https://wp.me/pKzXa-ua
But the biggest driver of the US stock market has been the major companies using this cheap finance to buy back their own shares to drive up the price and increase the ‘market value’ of the company
Behind the fantasy of financial markets, global (economic) growth has been slowing. And worse, there are now several economies that appear to heading into outright recession-South Korea, Turkey, Argentina, Pakistan
Trend real (World) GDP growth and business investment remains well down from the rate before 2007
——————————————————————“As world economy is slowing, foot to the floor printing of currency by all central banks everywhere https://wp.me/pKzXa-ua
This has inflated fixed asset values (buildings, land, gold) everywhere including in Ireland (as a hedge against future currency losses). There is nothing left in the tank to rescue the world from a new recession-and we’re discussing John Delaney”
Paul Sommerville, Marketing Consultant, on Marian Finucane Sunday
April 14, 2019
Italy could be focus for new European Crisis
The EU economy is slowing, the world economy is slowing
European Central Bank to print new Bond-This means Ireland will be taking on other countries debts
Italy could be focus for new European Crisis-Far Right Liga (Salvini) doing great in Polls-big rise of far right everywhere in Europe
Italian Central bank selling Italian state bonds (borrowing) in spite of EU Fiscal Treaty though Italy has huge debts
Italian Government to take back gold from Italian Banks to stop EU confiscating it
Presenter: This sounds a basket case
The EU economy is slowing, the world economy is slowing
German Stagnation Growth Rate 0.8%
ECB has printed 4,500 Billion Euro and injected into European Economies
Presenter: flowing into property in Ireland, irish shares
Yes .Asset price inflation all over the world
Presenter We don’t have the armoury to deal with a new crash
Yes. There is nothing left in the tank and we are talking about John Delaney
Us Stock Market Rising-These companies are in Ireland
Huge world crash possible
As world economy is slowing, foot to the floor printing of currency by all central banks everywhere
This has inflated fixed asset values everywhere including in Ireland (as a hedge against future currency losses). There is nothing left in the tank to rescue the world from a new recession-and we’re discussing John Delaney
Stockmarkets are still rising because investors think the printing will continue
China: Biggest bubble in history—printing more and more money
———————————————————–Billionaire Owned Coolmore Stud has bought up over 20,000 Acres of Farming Land in South Tipp as a Hedge against New Recession and Currency Collapse- not To Expand the Stud Farm https://wp.me/pKzXa-ua
Farm workers being hired to farm the extra land
Farmers left frustrated over Coolmore Stud ‘pricing them out’ by buying land By Private Treaty
Farmers in the south Tipperary region are reportedly being priced out of buying land by Coolmore Stud and land is understood to be changing hands having not being disclosed for sale.
The issue has led to huge frustration amongst farmers in the area and Coolmore is understood to have accumulated a portfolio of up to 20,000ac.
https://www.agriland.ie/farming-news/farmers-left-frustrated-over-coolmore-stud-pricing-them-out-of-buying-land/
————————————————————–Gold History
Price of Gold in Us Dollars https://wp.me/pKzXa-ua
April 2019 Increase Since 2016 21.5%
Increase since 2004 (Pre-crash) 228%
year price per Oz (USD)
2000 300
2004 390 Pre-Crash Investors Getting Worried
2008 880 At Crash Investors Very Worried
2011(sept) 1900 Depth of Recession Investors Snapping up Gold
2016 1070 Height of “recovery” Investors buying little Gold
2019 1300(1296) Heading Towards New Recession Investors Fear New Recession
See Graph
————————————————————–Why the next economic crisis will be much harder to fix https://wp.me/pKzXa-ua
“Transatlantic relations are being transformed, partly because the dollar is used by the Trump administration to leverage its policy on Iran against European companies. That is forcing the pace in developing an autonomous European Union security and defence policy, as well as a more distinct economic and political regime.”
Paul Gillespie, Irish Timrs, September 29, 2018,
Ten years on from the global financial crisis of 2008 it helps to see it in historical and geopolitical terms. Many continuing effects of the crisis generate fears it could recur, triggered next time more from political economy than finance.
Such perspectives reveal 2008 is aptly named. It was a crisis greater in scale and speed than that of 1929, defying claims that capitalism is no longer prone to disaster. It played out financially through the banking system before morphing into the politics of austerity, inequality and reactive populist revolts in the major western states. And it was genuinely global, rolling over from the United States to Europe and immediately affecting China and then major emerging economies.
The crisis revealed how vulnerable this more open structure was to collapse in one country which was then rapidly generalised globally
It is salutary to recall ideas about the “great moderation” in the 2000s. They asserted that economic cycles and crises had been ironed out by self-sustaining markets and policy wisdom arising from the rebellions against Keynesian policies of the 1970s and 1980s now commonly labelled neoliberalism.
Deregulation of national and international financial controls in the 1990s dramatically increased wholesale cross-border lending, which along with far greater world trade is dubbed globalisation.
The crisis revealed how vulnerable this more open structure was to collapse in one country which was then rapidly generalised globally.
Economic historian Adam Tooze vividly documents in his recent book Crashed, How a Decade of Financial Crisis Changed the World the policies followed in Washington after the Lehman bank collapsed following a year’s pressure from US subprime mortgages. Some $600 billion in liquidity swap lines for dollars were made available to European central banks to stop deals done in that currency collapsing in a transnational bank run. That financial flow paved the way for the European Central Bank’s huge quantitative easing later.
The currency swaps used transatlantic agreements made during the period of US hegemony which will be much more difficult to repeat if dollar shortages recur in the more multipolar world heralded by the crisis. This new political economy was symbolised by the Group of 20 which first met in November 2008. Geopolitical factors determined that emergent states such as Brazil, Mexico, Singapore, Turkey and South Korea received the dollar swaps – not China, Russia or India.
Transatlantic relations are being transformed, partly because the dollar is used by the Trump administration to leverage its policy on Iran against European companies. That is forcing the pace in developing an autonomous European Union security and defence policy, as well as a more distinct economic and political regime.
Alongside Europe and the euro zone, China was the other major player in the counter-crisis measures taken in 2008-2009. An astonishing mobilisation of borrowing and lending will see China’s debt rise to a projected 327 per cent of its GDP in 2022, twice that in 2008. It has been poured into infrastructure and urban development that has nearly trebled the size of its economy, creating the surpluses it is now exporting in its “belt and road” policy to Eurasian states. Illustrating the sheer scale involved, China used 45 per cent more concrete in 2011-2013 than the US used in the whole 20th century.
Tooze calls Chinese leader Xi Jinping’s resulting state capitalist Chinese dream “the most spectacular Keynesian promise ever made”. Xi gambles that debt-led growth funding plus rapid high-technology catch-up will provide a better life for most of its people and thereby legitimise the regime, while it heads off democratic unrest by greater repression.
America First
Trump’s America First policy threatens to upset Xi’s vision by a trade war intended to contain or reverse China’s emergence as a front rank power. If that conflict spills over to other emerging states the world is heading into a more unstable period and another possible global recession, according to Nouriel Roubini, an economist who foresaw the 2008 crash. He says the next crisis could arise in emerging markets such as Turkey or Argentina which borrowed heavily in low-interest-rate dollars, and could then spread to China.
An Unctad report this week says global debt has increased from €142 to €250 trillion since 2008, driven mostly by banks and corporations in the developed world, which control most world exports.
Their profits feed the growing inequalities of income and wealth which are another legacy of the 2008 crash. Thomas Piketty, the French economic historian who has comprehensively documented that trend, warned in a recent paper that social democratic parties no longer represent the workers who used to be their electoral base, and who now swing to populists. Jeremy Corbyn’s British Labour Party arguably bucks that trend.
pegillespie@gmail.com
——————————————————–
Corporation Tax Rates Falling Across 35 OECD Countries RTE:
Cuts to corporation tax and personal income tax rates were the main features of tax reform in advanced economies last year, according to the Organisation for Economic Cooperation and Development.
But it says countries have not made much progress on social security reforms and environmental taxes.
The average corporation tax rate across the 35 countries in the OECD fell from 32.5% in the year 2000 to just under 24% this year, the long term trend pushed along by big changes in the United States and France.
But OECD tax head Pascal Saint-Amans said it was not a race to the bottom but more like a race to the average, with those countries moving their very high corporate tax rates more into line with competitors. Wed Sep 5, 2018
—————————————————————————–
Tax reforms accelerating with push to lower corporate tax rates-OECD
““As economic times improve, fiscal policy choices should avoid the risk of excessive pro-cyclicality and focus on supporting the longer-term drivers of growth and equity,” Mr Saint-Amans said. “Continued international cooperation will also be important to continue the fight against international corporate tax avoidance, in line with the commitments made by countries to implement the minimum standards and recommendations agreed upon as part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.”
For further information, contact Pascal Saint-Amans (+33 6 2630 4923), director of the OECD Centre for Tax Policy and Administration, or the OECD Media Office (+33 1 4524 9700).
OECD:05/09/2018 – Countries have used recent tax reforms to lower taxes on businesses and individuals, with a view to boosting investment, consumption and labour market participation, continuing a trend that started a couple of years ago, according to a new report from the OECD.
Tax Policy Reforms 2018 describes the latest tax reforms across 35 OECD members, Argentina, Indonesia and South Africa. The report identifies major tax policy trends and highlights that economic stimulus provided by fiscal policy, including to a large extent through tax policy, has become more significant.
Significant tax reform packages were introduced in Argentina, France, Latvia and the United States, with a strong focus on supporting investment and some measures designed to enhance fairness. Other countries have introduced tax measures in a more piecemeal fashion.
Across countries, the report highlights the continuation of a trend toward corporate income tax rate cuts, which has been largely driven by significant reforms in a number of large countries with traditionally high corporate tax rates. The average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018. While the declining trend in the average OECD corporate tax rate has gained renewed momentum in recent years, corporate tax rate reductions are less pronounced than before the crisis.
——————————————————————–
Pat Flanagan: We’re thundering towards another crash – and the Government must go now before economy goes belly up
Ireland owes a staggering €201billion – equating to €42,000 for every man, woman and child in the State
Another crash is coming, experts say https://wp.me/pKzXa-ua
The term “soft landing” should strike fear into every homeowner in the country as the last time we heard it the economy plunged off a cliff and house prices plummeted by 70%.
But it was doing the rounds again this week amid assurances there won’t be a repeat of what happened 10 years ago when the country went bust.
By Pat Flanagan Irish Mirror , 7 SEP 2018
As talk of an election looms and the Government claims the economy is booming it emerged Ireland is the third most indebted nation in the developed world.
We owe a staggering €201billion – equating to €42,000 for every man, woman and child in the State.
Then there was that worrying survey from the Economist magazine which showed houses in Dublin are 25% overvalued against income and that property price growth in our capital has outpaced 22 other global cities over the past five years. You get the feeling
something’s got to give, while Fine Gael want us to give them more time in office so they can oversee the disintegration of the health service and homelessness go from crisis to catastrophe.
Listening to Leo Varadkar, Paschal Donohoe and Eoghan Murphy is like tuning into a broadcast from a parallel political universe where everything appears real but is actually a Matrix-like false reality.
Taoiseach Mr. Leo Varadkar T.D Photo Gareth Chaney Collins (Image: Collins)
Indeed didn’t we learn this week Leo suggested creating anonymous accounts online to make positive comments about their policies which in reality are catastrophic.
Fianna Fail TD John McGuinness delivered a dollop of much-needed reality yesterday when he called for an election now and pointed out difficulties facing ordinary people are getting worse.
He told RTE’s Today With Sean O’Rourke “the issues are the same today as they were when this Government started”.
In fact, they’re much worse now. This winter we could see the number of patients on hospital trolleys break the 1,000 barrier and with a tsunami of evictions on the way the housing crisis could spin totally out of control
McGuinness is absolutely right that people have had enough and it is past time Fianna Fail pulled the plug on what is a Cabinet of clowns.
Indeed if his party had more TDs like him they would be baying for an election instead of dreading one and propping up a Government which is ideologically incapable of helping ordinary people.
After his interview social media users were asking why this man is not leading Fianna Fail. He might be yet.
I spoke to Deputy McGuinness in connection with the Irish Mirror’s campaign to stop the sale of family homes to vulture funds and he bravely called on politicians of all parties to “have the balls” to stand up to the increasingly arrogant bankers.
For anyone who remembers the run-up to what we now call the Great Recession it was a case of deja vu this week.
Ratings agency S&P predicted a soft landing for the Irish property market. Almost everyone said the same in 2007 yet we’ll be paying the crash landing for the next 50 years.
On top of this Central Bank Governor Philip Lane warned it is necessary homes be sold off to the vultures to protect the banks from “future shocks”.
Who’s going to protect the tens of thousands of families from the future shock of having their home repossessed and them evicted?
Then there’s that €201billion debt that costs us €9billion a year in interest which the Government reassures us is manageable because of the growing economy.
But when you look behind the Matrix you realise much of what Finance Minister Paschal Donohoe is blathering on about is what has rightly been described as “Leprechaun economics”.
Don’t take my word for it, last week the National Competitiveness Council warned this economic model is unsustainable.
Should the worst come again you know who’ll be picking up the tab. That’s right, you.
We’ve had a lost decade and the fact is after seven of those years Fine Gael haven’t even begun to solve the problems facing ordinary citizens. They don’t deserve another week in power.
Pat Flanagan is a senior news reporter with the Irish Daily Mirror who joined the paper in 1999. He is a highly-respected journalist whose no nonsense and straight talking column has won him thousands of fans.
——————————————————————-
Ireland is most vulnerable nation in a global trade war, German Think-Tank Report Shows https://wp.me/pKzXa-ua
“The findings indicate the Republic is extremely vulnerable to the creeping tide of protectionism internationally, which last week saw the US impose tariffs on European, Canadian and Mexican steel and aluminium imports.”
Eoin Burke-Kennedy, Irish Times, : Friday, June 8, 2018,
Ireland has most to lose from a global trade war, according to a report by German think tank Bertelsmann Stiftung.
The Republic was ranked first of 42 industrialised and emerging states in the group’s latest globalisation index, which ranks states on the basis of their levels of economic, social and technological integration with the rest of the world.
However, it came fourth behind Switzerland, Japan and Finland in terms of benefitting financially from globalisation, reflecting the fact that much of profits generated by multinationals here are repatriated elsewhere.
Nonetheless the findings indicate the Republic is extremely vulnerable to the creeping tide of protectionism internationally, which last week saw the US impose tariffs on European, Canadian and Mexican steel and aluminium imports.
The move has inflamed transatlantic and North American trade tensions and provoked retaliatory tariffs from Canada and Mexico, and a promise from the EU to impose tariffs on US goods well.
———————————————————
European Peoples Party Including FG warn of growing Trade War Between EU and US. The Livelihoods Of Irish People Are in Grave Danger. The Country Has been Left economically powerless by successive governments through gross over-reliance on Multi-National Companies
Sunday Independent-Forget Brexit, the real European fears for the future lie much further afield
Dan O’Brien Sunday Independent, May 27 2018 (Right Wing Economist Dan sees Growing Dependence on Chinese Multinationals as the answer-see further down)
Europe is worried about Trump and Putin – but Brexiting Britain has become an irrelevance, says Dan O’Brien from Riga
I spent the second half of last week in the Latvian capital at a think-in organised by the European People’s Party, the political grouping of European centre-right parties. Their “European Ideas Network” brought together MEPs from that party and a range of non-political analysts to ponder topical matters.
Listening and chatting to politicians in thinking mode can be interesting. Engaging with a large group of politicians from the length and breadth of the continent is always interesting.
Over the course of two days, and in contrast to political discourse in Ireland, Brexit was hardly mentioned. One person said in a conversation over dinner that Britain was already a de facto non-member. More relevant, from an Irish perspective at least, was the rock-solid support for Ireland for whatever position it took on the border. As it is difficult to see how the Irish and British positions can be reconciled, the prospect of Brexit talks failing and a chaotic situation in 300 days’ time is increasingly real.
In contrast to the UK, the US was mentioned again and again. Many aspects of Europe’s relationship with America were raised. One was that country’s ever bigger and more powerful technology companies.
Mark Zuckerberg, the founder of Facebook, had appeared before the European Parliament earlier in the week. Manfred Weber, who leads the EPP in the European Parliament and was involved in the (cursory) questioning of Zuckerberg, seemed to get a bit carried away when he told the meeting in Riga that “we have the power to destroy Facebook”. He quickly rephrased, but for someone as senior in European politics to speak, or misspeak, in this way is an indication of how strongly many European politicians feel about the technology giants.
This is a source of tension with the US. Many Americans, on both sides of the country’s political divide, have long viewed European actions against the tech giants, including the €13bn tax ruling against Apple and Ireland, as an expression of anti-Americanism. They ask – but only rhetorically – if Apple and Facebook were European, would Brussels be quite so interested in regulating them and investigating their tax affairs?
And Americans are not just grumbling. Days after the Apple decision was announced, in August 2016, the US authorities slapped a fine of an almost identical amount on Germany’s Deutsche Bank for its role in the financial crisis almost a decade earlier. There is plenty more where that came from, particularly with a capricious, unrestrained and easily-provoked president in the White House.
Retaliatory action is moving up the agenda in another area too – the looming transatlantic trade war. Next Friday the Trump administration intends to hit some European goods going into the American market with new taxes. These tariffs are a clear breach of the rules of the World Trade Organisation. A member that is subject to such tariff impositions is within its rights to impose countermeasures. That is exactly what Brussels has said it would do.
Trump has already warned that he will impose another round of tariffs if Europe retaliates. Brussels, fearful that the US president would exploit any sign of weakness, will likely respond again. A cycle of this kind could damage the huge transatlantic flow of goods to the point of tipping both economies towards recession. Just how serious this could be for Irish jobs was illustrated at the end of last week when the Irish Whiskey Association warned that a trade war could “devastate” the fast-growing drinks industry. Though such warnings from lobby groups should usually be taken with a pinch of salt, this one is accurate. Half of all the whiskey produced on this island is drunk by Americans. It is worth recalling that measures taken in the US in the past (prohibition in the 1920s) destroyed Irish whiskey then.
And it is not only jobs in the drinks industry that are at stake. Ireland has a closer trading relationship with the US than any other EU country. Astonishingly for such a small country, pharmaceuticals made in Ireland outsell those of any other country in the US. These Irish exports could well come into the line of fire if there is a trade war.
Whatever concerns there were about the US, they paled compared to fears about Russia. Lech Walesa, the Polish trade unionist who played a significant role in bringing democracy to eastern Europe, made a guest appearance at the event. Among other things, he made a comment about “pulling the bear’s teeth” at the time of the fall of communism.
If teeth were pulled then, they have grown back and are being displayed with the sort of menace that hasn’t been seen since the Cold War ended. Fear of Russia was palpable among the Latvian hosts and others from their neighbourhood.
“The EU is about quality of life. Nato is about life,” said one local politician on how seriously they see the threat from their giant neighbour and the role of Nato in their defence.
He went on to warn somewhat ominously that “if Ukraine falls, the Baltics will be next”.
As Latvians this year mark the centenary of their independence from Russia, they do not take it for granted. For well over half of the past 100 years the country has been occupied – mostly by the Soviets but also by the Nazis. We in Ireland take our security for granted. Our geography has allowed us to free-ride on the efforts of others. Those who are proud of Ireland’s neutrality should spend some time in the Baltics where their giant neighbour has scant regard for the rights of small countries. Neutrality is not a luxury they believe they can afford.
A somewhat dismaying aspect of the conversation was the discussion on populism, including how the EU itself is often an object of populists’ ire. MEPs from all the centrist parties tend to be strongly supportive of the European “project” and constantly discuss ways to bring it “closer to the people” (if I had a euro for every time I heard this issue raised in conference rooms and lecture theatres across Europe over the past 20 years I’d be richer than Zuckerberg).
But mainstreamers have struggled to convince voters of the EU’s worth. There were no new ideas proposed last week, a week in which the most Eurosceptic government ever to hold power in a large EU country took office in Italy. One wonders how long a political entity that does not have an emotional meaning for citizens can last?
*******
Like the many people who were abroad last week, I was unable to vote in last Friday’s referendum. Given how much travel people do these days both for work and pleasure, it is surely past time that postal voting of some form was introduced.
——————————————————————–
Shock to Ireland’s corporation tax base ‘inevitable’
Mr Coffey also noted that the level of concentration by country of ownership, which suggested that 51 of the top 100 payers were US companies, which paid €4.25 billion more than half of the total.
“It is clear that our receipts are also highly concentrated among US-owned companies,” he said.
Eoin Burke-Kennedy Irish Times Wednesday, May 16, 2018
A shock to the State’s corporation tax base, which generated a record €8 billion last year, is more or less inevitable, economist Seamus Coffey has warned.
He said receipts from the business levy were likely to fall at some point in the future. And this would happen because they were “inherently” volatile and, in Ireland’s case, highly concentrated around a small number of companies.
“We should not be surprised, or taken by surprise, when this happens,” the chairman of the Irish Fiscal Advisory Council told the Oireachtas Committee on Budgetary Oversight.
“In the near term, the reason for the fall is likely to be the inherent volatility which is a feature of our corporation tax receipts rather than any structural shift or change,” he said.
About 40 per cent of the revenue generated from corporation tax in the State comes from just 10 companies, the bulk of which are US multinationals.
The Government has been warned repeatedly not to rely on current corporate tax buoyancy, which accounts for about 16 per cent of its annual tax take, to fund permanent spending measures. The most recent note of caution was struck by by the International Monetary Fund.
Mr Coffey said his comments did not contradict his previous assessment that the “level-shift” increase seen in corporate tax in 2015 was sustainable over the medium term. This is a conclusion he made in a Government-commissioned review of the tax last year.
“There is nothing that has happened in the interim, either at EU, US or OECD [The Organisation for Economic Co-operation and Development] levels, that would alter that conclusion,” he said.
However, the University College Cork economist noted that his conclusion was made in the context of the 2016 out-turn for corporation tax of €7.3 billion.
“It was not known that 2017 receipts would exceed €8 billion and that forecasts would include projections showing receipts reaching €10 billion by 2021,” he said.
Mr Coffey said while we identify corporation tax as a risk “getting all this money is a positive”.
He added: “I assume we’d like to get the receipts for as long as we can. But we should be building into our fiscal policy that these receipts might not be sustainable into the long term.”
Mr Coffey said while corporation tax receipts had remained relatively stable there had been significant volatility within the figures.
He noted that receipts from the largest 10 payers in 2015 came to €2.8 billion while these same companies paid €2.25 billion in 2017. Conversely, the top 10 payers in 2017 paid €3.2 billion compared with the €2.3 billion these companies paid in 2015.
© 2018 irishtimes.com
——————————————————-
https://wp.me/pKzXa-ua
The IMF has just reported that total global debt is now at a staggering $164 trillion, which amounts to 225% of total global GDP. Every person on this planet could turn over everything they produce for the next two plus years and we’d still be in debt.
https://www.youtube.com/watch?v=rqra9CoH6C8&feature=youtu.be
his system ensures that the human race will always be in debt, and this system is the new slavery, meaning that when we owe money in this fashion we are not free to use the full power of our labor and resources to improve our communities and infrastructure. Instead, lending moves in the direction of the development of instability and weapons of war. Any time the lender wishes to flex its muscle it can create instant economic hardships by calling in this and making it more difficult to borrow money to service the debt.
————————————————————–
Following Sunday Business Post Warning That Ireland May Face “Economic Oblivion”, Right-Wing Pro-Capitalist Economist, Dan O’Brien, Points to 4 Huge Dangers in Sunday Independent
1)A transatlantic trade war
The US has temporarily held off on hitting Europe with unjustifiable tariffs. It has begun a trade war with China. If US President Donald Trump does extend his protectionist measures to goods from the EU, Brussels has signalled clearly that there will be retaliation. Trump has said he will counter retaliate.
Ireland’s biggest single trading partner is now the US. No other European country is as economically dependent on the US in relative terms. In 2016, Irish exports of goods and services to the US amounted to €25,000 per person employed in the economy. Significant new tariffs on those exports would push the Irish economy towards recession.
Four Economic Dangers To Ireland
Dan O’Brien, Sunday Independent, April 15, 2018
Here are four dangers to our economy that get too little attention.
A transatlantic trade war
The US has temporarily held off on hitting Europe with unjustifiable tariffs. It has begun a trade war with China. If US President Donald Trump does extend his protectionist measures to goods from the EU, Brussels has signalled clearly that there will be retaliation. Trump has said he will counter retaliate.
Ireland’s biggest single trading partner is now the US. No other European country is as economically dependent on the US in relative terms. In 2016, Irish exports of goods and services to the US amounted to €25,000 per person employed in the economy. Significant new tariffs on those exports would push the Irish economy towards recession.
Financial crisis in the eurozone
It is almost six years since the existential crisis of the euro calmed. Over the past year the bloc’s economy has done very well. But structural weaknesses remain. The eurozone’s outsized financial sector is weak and vulnerable. Private sector debt levels are now higher than in the US. Public sector debt in some countries is at danger zone levels.
Italy, whose public debt levels are the same as Greece’s in 2010, remains the weakest link. Along with disastrous public finances, it has a two-decade record of chronic economic under-performance, a teetering banking system and political capacity for reform that is dismal.
In recent years the ECB’s bond-buying programme has provided a safety net. That net will be dismantled, starting later this year. A Greek-style panic about Italy is all too possible.
Brexit Risks
The biggest threat to the talks on Britain’s exit from the EU is the Irish border issue. The backstop proposal by the Irish and EU side, designed to keep Northern Ireland as a de facto member of the EU come what may, risks collapsing the talks. However undesirable any return to even a soft border would be, that may be the least bad option. Pushing too hard for no border all may lead to a very hard Brexit, and hence a very hard border.
Cyberattacks and new cold war
The greatest strategic miscalculation in the history of independent Ireland’s foreign policy also involved Northern Ireland. Exactly 70 years ago Sean McBride believed he could use Irish Nato membership as a bargaining chip for reunification. That gamble failed.
Geography and the physical presence of Nato forces in our region meant that Ireland enjoyed the security benefits of membership without the costs. But in the digital era, when countries can plausibly deny cyberattacks, Ireland is more vulnerable. As a hub for American technology companies in Europe, a cyberattack on the State’s critical infrastructure could shut those firms down. This could be an attractive option for a hostile state seeking to send a message to the world. It would have the added attraction of not risking the triggering of Nato’s mutual defence clause.
——————————————————
“Otherwise Ireland Faces Economic oblivion.”
Facebook Debacle is a Reminder that Ireland is facing an Existential Crisis of its Own-Sunday Business Post Editorial
“Ireland faces a great many existential questions right now. The answers will define the next century of its growth- or stagnation. The conversations about how to frame the questions and adequately answer them must begin now. Otherwise Ireland Faces Economic oblivion.”
Full Editorial SB POST
Facebook has a licence to print money. In fact, it has two.
The first is its business model, which allows an enormous network of ordinary people to share unprecedented volumes of personal and often private information about themselves – information that Facebook can collate and cross-reference to make perhaps the most detailed profile of huge swathes of the global population that the world has ever seen.
Its second licence to print money comes in the shape of its tax strategy.
Both of these have enormous relevance to Ireland at the moment, and their combination is far more relevant to Ireland than to many other countries, given Ireland’s increasingly tenuous ability to position itself at the cusp of what is increasingly seen as the dawn of the fourth industrial revolution.
It is worth considering both of these issues separately.
Tactics
First, in the glib and worthy language of Silicon Valley, Facebook is about connecting people.
But it’s not really; it’s about building a platform with sufficient utility that its users feel compelled to trade vast amounts of their data for access to the platform. This data enables advertisers to target them extremely effectively.
There is nothing inherently wrong with this; users should be aware that they are the product, and if they, as consenting adults, are willing to trade their data for access to Facebook, then so be it. The company’s end of this bargain is that it will guard this data closely and use it for its intended purpose only.
The Cambridge Analytica scandal shows that Facebook has manifestly failed in upholding its end of the bargain.
Its organising purpose is to bore into its users’ data to hone targeting solutions; this has clearly overridden any sense of responsibility the company has to its users. Its approach has been cavalier at best, and at worst, willfully disrespectful of its customers.
It must expect a legitimate backlash from its users, and the elected politicians who represent them.
For Ireland, the enormous and legitimately frightening threat associated with the abuse of vast sets of private and confidential data is not just a matter for Russia or Britain or America.
Our Data Protection Commissioner (DPC) is also the lead regulator of Facebook and many others for the entire EU. In an audit in 2012, it uncovered the very flaw that gave rise to the CA scandal, yet Facebook did not introduce policy changes for two years.
Whether this was the result of powerlessness on the part of the regulator, or resistance from Facebook, does not really matter.
It shows that we lack the tools to compel these companies to behave in an appropriate manner, and in a timely fashion. The asymmetry between the resources of Facebook and the DPC is profound, but Ireland must prove itself equal to the task it has set itself. Facebook’s jobs, regulatory and taxation functions are in Ireland because of the industrial model we have chosen. At a bare minimum, Ireland must prove itself equal to the task of managing the enormous multinational sector it has created, otherwise we must ask ourselves who really holds the power in this relationship?
How can we get companies like Facebook to behave in a proper manner towards their users? The example of the financial sector is instructive. Time and again, banks have been hit with multibillion euro and dollar fines, and yet time and again the financial sector rides roughshod over the interests of citizens. Fines, it is clear, do not work. We should not replicate this experience for the tech giants. Proper regulation should go after the sin Facebook has committed. It should intrude and inspect more completely how it manages its customer data, and if it exploits it, regulation should halt this.
Taxes
If a company has a licence to print money, go after the licence – not the money. That’s the only way to get their attention.
That’s not the end of the matter for Ireland, however. When it comes to tax – as this newspaper has repeated regularly – Ireland can no longer sit back comfortably and pretend that an industrial policy devised in the middle of the last century is relevant or useful in the beginning of the 21st century.
Over the years, Ireland has played a vital role in allowing the social media giant to funnel huge sums of money through its European headquarters, based in Dublin, and onwards to its offshore cash pile.
Facebook holds over one-quarter of its cash offshore – just over $38 billion. It is not unique in this, and not unique in using Ireland. Many companies around the world now have so much money they literally cannot find a purpose for it; so it sits, offshore, an insult to the countries from whose economies it is extracted.
The companies themselves are almost indifferent to this cash; it has no real useful purpose. Their R&D departments are well funded, their products are best in class, their employees well paid. It is merely testament to the effectiveness of the lawyers and accountants who concoct their tax strategies, and the indifference, incompetence or complicity of the jurisdictions – including Ireland – which facilitate its construction.
In an era where profound and widening inequality around the globe is loosening the social contracts which underpin the modern state, Ireland cannot pretend it is an innocent.
Ireland has made no friends in assisting these enormous multinational companies – many more powerful than nation states – from diverting the taxes they owe away from the infrastructure of the countries in which they operate.
Facebook, to its credit, has committed to paying more tax in the jurisdictions in which it operates – and less, you would think, in Ireland. In this, it is ahead of the curve. The tectonic plates of tax, trade and investment are shifting.
But our track record in helping multinationals to efficiently tax-plan – in that great industrial euphemism – will not help us when it comes to the much more pressing question for us of how to build a sustainable economy – one that is based on more than a small handful of those big companies providing jobs (especially when we’re at the dawn of an age of automation and the labour we offer becomes far less of an attraction).
Ireland faces a great many existential questions right now. The answers will define the next century of its growth – or stagnation. The conversation about how to frame the questions and adequately answer them must begin now. Otherwise Ireland faces economic oblivion.
——————————————————
JIM POWER: The economy is powering. What could possibly go wrong?
Irish Examiner Friday, March 23, 2018
Last week, the CSO produced its first estimate of growth in the Irish economy in 2017, writes Jim Power.
This will be subject to considerable revision over the coming months as further data become available, but it does give us a fairly accurate representation of what went on in the Irish economy last year.
In general, it was a good news story.
The size of the Irish economic cake, as measured by GDP expanded by 7.8% but of course, we all know at this stage that Irish GDP numbers have to be treated with a strong degree of caution, given the various activities of some of the larger multinational companies which support a lot of direct and indirect employment in the economy.
As a result of these distortions, the CSO attempts to get a truer picture of what was really happening on the ground by stripping out some of the more nebulous activities of the multinationals.
Hence, “modified domestic demand” expanded by 3.9%. This growth number appears like a much more realistic and a believable snapshot of what went on in the economy last year.
While it does present a more sober assessment, nevertheless it still represents a pretty decent level of economic activity that stacks up with most of what we already know about what went on in the economy last year.
Looking ahead to 2018, we can pretty confidently expect more of the same.
As we approach the end of the first quarter, it is clear the momentum in the economy is still quite strong and quite broadly based. What could possibly go wrong?
Last week, the CSO also produced a publication, Ireland — Facts & Figures 2017, which contains a lot of very interesting facts and figures, many of which present a clear picture of the obvious vulnerabilities in the economy.
For example, the top 50 largest enterprises in the business economy by gross value added (GVA) accounted for 36.4% of total turnover, 54.6% of total GVA and 59.5% of gross operating surplus in the economy.
However, these top 50 enterprises accounted for just 6.4% of total persons employed in the economy.
Separately, research from the Revenue Commissioners recently showed that 37% of total corporate tax receipts are paid by the 10 largest companies operating in the economy.
The bottom line is that Ireland is incredibly dependent on a small number of very large companies, and this dependence obviously creates a vulnerability in the event of something going wrong for those companies themselves or for their continued presence in the country.
The recent unhealthy international focus on our corporation tax activities does appear somewhat ominous in the longer term.
Data on the household budget show the trend in various categories of household spending over time and some really interesting trends emerge.
For example, the proportion of household spending on food has declined from 27.7% in 1980 to 14.7% in 2016; the proportion spent on alcoholic drink and tobacco declined from 7.2% to 3.3% over the same period; and the proportion spent on clothing and footwear declined from 8.9% to 4%.
These trends largely reflect the price compression that has characterised food and clothing sectors over recent years.
On the other hand, the proportion spent on housing increased from 7.2% to 19.6%.
This highlights the fact that rising house prices and rents are soaking up more and more of household incomes, and of course, this spending is concentrated in the age segment of the population between 30 and 50 years of age, which is also the age segment when the financial pressures exerted by children are also most intense.
On the plus side, this is also the age segment where incomes tend to be at their highest for people engaged in paid employment.
The data does show, however, that housing has become the biggest and most worrying economic and social issue of our time.
We really need to get our act together on this issue, or it will do serious damage to the competitiveness of the economy and even more serious social issues.
—————————————-
Trade War between World’S Two Biggest Economies –US and China-Hots Up as Shares on World Stock Markets Tumble
RTE-US tariffs: Asian shares plummet as China signals retaliation –
European markets set to dive on the opening bell on Friday after huge sell-off overnight in Asia, where US-China tit-for-tat will be most felt. Follow all the action here
Nikkei down 4% as investors fear damaging confrontation
Trump imposes tariffs on China
Australia fears swift end to tariff exemption
Will Trump Pause Imposition of Tariffs on EU Imports?-EU seeks Clarification
Irish Times-“US retreats on trade as EU backs UK on Russia
Donald Trump’s move weakens Ireland’s line of attack on proposed tax on digital firms”
————————————————
FG MEP BRIAN HAYES ON RTE RADIO: “What I want to know is what will replace the 2 Billion Euro reduction in Irish Tax Revenue caused by the new EU digital sales tax. …….Ireland will veto the measure if it is not in our interest.”
Why LEO Grovelled to Trump
The Real Washington Meeting, March 15
Exclusive: Ireland seeks Trump’s help to scupper EU tax plan
Head of IDA and Enterprise Ireland lobby US commerce secretary; move puts Ireland on a collision course with Brussels
Head of IDA and Enterprise Ireland lobby US commerce secretary; move puts Ireland on a collision course with Brussels. Ireland is seeking the Support of the Trump Administration to help scupper the EU’s new digital tax plan, with Irish business leaders lobbying US commerce secretary Wilbur Ross in a high-powered meeting in Washington last week.-S. Business Post
Business and Finance-PHOTO
Pictured, left to right: Danny McCoy, Ibec, Julie Sinnamon, Enterprise Ireland, Ian Hyland, Ireland INC, Secretary Wilbur Ross, Martin Shanahan, IDA, Helen Blake, Department of an Taoiseach, Michael Lonergan, Embassy of Ireland USA, Reece Smyth, US Embassy in Ireland.
Will Wilbur Ross Return The Favour for This?? Dont Hold your Breath!
Noonan lost the State 2.7billion in Premature Sale of Bank of Ireland Shares to Wilbur Ross and Others
2013:In July 2011, that “financial wizard” Michael Noonan sold 1.123 Billion of government shares in Bank of Ireland to Wilbur Ross and a North American Consortium. Now the shares are worth 3.8 billion. Wilbur thinks Michel Noonan and Richie Boucher are marvellous!! The reason the shares rose is that investors have been assured by Michael that BoI is a pillar bank. Recently Michael saved Wilbur and the mainly private owners of BoI a further 325m at the expense of the state when he voluntarily sold 1.3 billion in preference shares which the bank couldn’t redeem to a third party.-SeamusHealyTD in Dáil
——————————————————
IRISH TIMES FINALLY RECOGNISES COMING ECONOMIC CRISIS in TWO CONCLUSIONS!
BUT Cliff Taylor OMITS OBVIOUS THIRD CONCLUSION: Successive Governments (FF, FG, LAB) HAVE LEFT IRELAND POWERLESS WITH NO POLITICAL OR ECONOMIC SOVEREIGNTY.
How worried should we be about Trump’s comments on Irish tax rates?-Irish Times
“The second(conclusion) is that we are entering a period of major uncertainly. The ground is shifting under our feet, with unpredictable consequences. Add Brexit to a threatened trade war and new EU tax moves and you have a potent cocktail which, even as it works itself out, will affect investment decisions and take a toll. The rules of the game are about to change – we just aren’t quite sure what the new ones will be.
Let’s hope that a Trump trade war, with all its potential damage can be avoided. But even if it can be there are two inevitable conclusions. One is that while the goal of attracting foreign direct investment to Ireland will continue, it looks set to become significantly more difficult. And the more transatlantic tensions grow – about tax and trade – the trickier this will be.”Cliff Taylor Irish Times Saturday, March 17, 2018
Many a true word is spoken in jest, as the old saying goes, and many a barb is dressed up as bonhomie. US president Donald Trump addressed the typical plámás at Taoiseach Leo Varadkar in his speech in Capitol Hill this week – there were exiting times ahead, it was an honour to have the Taoiseach there and so on. But while there has been a fuss about the Taoiseach’s comments about wind farm planning in Doonbeg – and rightly so – the more important statement came from President Trump.
Turning to the Taoiseach, and in a light-hearted tone, he added: “Whenever there is a problem, you call. We’ll solve it. Except for trade. [Then facing the crowd.] They got those taxes so low. [And turning back to the Taoiseach.] You’re a tough one to compete with, with the taxes. But congratulations, great job.”
As we have found over the past year, it is difficult to disentangle Trump’s rhetoric from his likely action. The planned imposition of tariffs on steel and aluminium imports into the US – and threatened retaliation from the EU and others – has raised fears of a trade war. Is Trump’s latest tariff move sabre rattling ahead of the midterm US elections, or the start of something more serious? Who knows.
But as the commercial “aircraft carrier” used to house the European headquarters of many US companies, Ireland is in the front line here. Operating in a kind of pocket between the US and European Union economies has been central to Ireland’s economic model for years now. US companies employ more than 150,000 people in Ireland and are central players in our economy.
Economic nationalism
Why are things changing? Trump’s politics are based on a strange brand of “we win, you lose” economic nationalism. In this view of the world, Europe competes “unfairly” with the US and Ireland’s taxes have lured American jobs offshore. It is an odd theory in a world where big businesses are now embedded in international trade via sales and supply chains.
Ireland is at risk here if trade tensions spread. Irish goods exports to the US were €33 billion last year, more than a quarter of total goods sold overseas. Services exports to the US are also substantial, probably about €17-€18 billion last year, although final figures have not been published. Ireland is not threatened by the steel and aluminium move, but you could see how a trade war could quickly spread. The EU has already threatened to retaliate by slapping tariffs on bourbon, orange juice and peanut butter and perhaps even Levi’s jeans and Harley Davidson motorbikes. It is easy see how Trump would in turn react, setting off a cycle which would, sooner or later, draw in Irish companies exporting to the US.
Politically, China may be a more tempting target for Trump, so we will just have to see how this develops. But when you combine it with the Trump’s tax reform plan, which finally ends the rule which allowed US companies to avoid paying tax on international profits for as long as the cash was held outside the US, you see the backdrop for Ireland is changing.
So Trump has acted on tax – and is making moves on trade. Our St Patrick’s Day pass, which has meant the US has done little to damage Ireland economically for many years and much to help, may no longer be access all areas. At the same time, the big EU countries have pushed the European Commission to bring forward plans to impose a new tax on the sales of big US digital players in Europe, which threatens Irish corporate tax revenue.
Incendiary timing
A back-of-the-envelope calculation suggests this could cost us several hundred million euro out of corporate tax revenues of more than €8 billion. More importantly, it could also damage Ireland’s attraction as a location for FDI. The timing for this also, of course, could be incendiary, with trade tensions already bubbling and Trump sure to see this as an attack on US companies.
You could argue about the motivations for this which range from the ludicrously small amount of tax which these companies have paid, to a desire from the big EU players to boost their own tax coffers. But the politics of this are tricky for Ireland, with even the departing UK – traditionally an Irish ally in tax matters – making supportive noises about the tax.
Ireland’s recent economic success makes this all the more difficult for us diplomatically. It was one thing playing the tax card when the economy was catching up in terms of living standards. But now, even if GDP growth of 7.8 per cent overstates the reality in terms of people’s lives, it still grabs the headlines. Not only has this put us in Trump’s sights, the view in the big European capitals, in particular, is that we have had a good run and need to accept change.
Let’s hope that a Trump trade war, with all its potential damage can be avoided. But even if it can be there are two inevitable conclusions. One is that while the goal of attracting foreign direct investment to Ireland will continue, it looks set to become significantly more difficult. And the more transatlantic tensions grow – about tax and trade – the trickier this will be.
The second is that we are entering a period of major uncertainly. The ground is shifting under our feet, with unpredictable consequences. Add Brexit to a threatened trade war and new EU tax moves and you have a potent cocktail which, even as it works itself out, will affect investment decisions and take a toll. The rules of the game are about to change – we just aren’t quite sure what the new ones will be.
© 2018 irishtimes.com
———————————————————————-
Trade War Ramps UP As Trump Imposes Tariffs on Aluminium and Steel! EU, China To Retaliate!
Thousands of European Jobs At Risk! US needs domestic supply for its tanks and warships!
Financial Times -Stocks slump amid trade war fears over US tariffsl
CNN Today: Jean-Claude Juncker, President Eu Commission “The EU has been a close security ally of the U.S. for decades. We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk,”
BBC Report Today 02/03/2018: The main trading partners of the US have reacted angrily after President Donald Trump announced plans to impose tariffs on steel and aluminium imports.
Canada and the EU said they would bring forward their own countermeasures to the steep new tariffs.
Mexico, China and Brazil have also said they are weighing up retaliatory steps.
Irish Times 01/03/2018-The Trump administration has also cited national security interests for its action, saying the US needs domestic supply for its tanks and warships
Shares of Asian steel producers such as South Korea’s POSCO and Nippon Steel fell overnight.
China has indicated it could retaliate against US steel tariffs by targeting imports of US agricultural commodities, such as soybeans, of which America is the largest supplier.
Stop Press 02/03/2018
Fears of a trade dispute between the US and China over steel tariffs hit sentiment
European bourses follow their Asian and Wall Street peers lower
Shares in steel manufacturers around the world fall
Dollar pulls back from six-week high
Comment by Paddy Healy
A colleague has correctly pointed out:
Last time I checked the (US) army had all the tanks they needed. Like literally they were rolling off the assembly line into deep storage because there was no need for them.Kind of ditto the militarization of many police forces across America. The cup runneth over, literally.-Your Cousin
MY REPLY
I have no doubt that what you say is accurate.
But it is significant that both Trump and Juncker had military references in their statements. (Steel and Aluminium are key military materials). PESCO enables EU to take military action without US agreement. Strengthening EU military capacity also makes EU less militarily dependent on US and therefore in a stronger position to refuse to support a military action by US.
Trump may be just giving a military reason for something he wants to do for economic reasons at this point. However it is well to remember that trade wars tend to lead to military wars including “proxy wars”. Though Trump may have all the hardware he needs for current purposes he may feel he needs more in the future. If the hardware of the EU members of Nato can no longer be relied on , he may wish to arm other allies! Shifting alliances have always been a feature of trade wars and military wars. Remember the Stali-Hitler Pact! Could we see a US-China or a US-Russia pact in the future with the EU as the enemy.? Of course we could!
Second Discussion on my Post
Response to my Post on the Imposition of Tariffs by Trump on Facebook
In fairness the respondent initially misunderstood my post which may have been my fault
RESPONDENT
Your post is highly propagandised. For over 20 years, the US has been trading at a huge deficit each year, amounting to over 900 billion last year. Free trade has not been fair trade. Manufacturing of steel and aluminum has all but disappeared in the US due to cheap imports. I watched a program about this, which compares the industries exporting steel to the US like a monopoly, with no anti-trust laws against the unfair practices. However, there are anti-dumping laws in the trade agreements, and they have been violated year after year without consequence. They are now going to be enforced for these two materials.
As far as putting European jobs at risk, USA jobs were more than put at risk. They were eliminated because the steel mills closed. The USA is under no obligations which would prevent them from providing jobs to unemployed Americans, and making their own steel rather than importing it. The US taxpayers are under no obligation to provide income to Europe.
My Reply
Perhaps I did not make my meaning clear. I am not taking sides between imperialist powers. In the past, I was constantly reminded by a republican friend of the position of Macchiavelli which he summed up as: “States have no morals (or ethics), just interests”. As a socialist and a republican I would update this by saying : “the ruling classes of capitalist states have no morals, just interests”. Whether it is the ruling elite of the grovelling 26-county state, the US state, the British State, The Franco-German Alliance which dominates the EU or any of the others, they are all capable of extreme savagery against human beings at home or abroad as they have demonstrated repeatedly in history.
My concern is to warn people that if we do not replace these elites in good time, we will all be sacrificed in wars between these groups as millions have been sacrificed in the past and are being sacrificed in proxy wars as I write. To do this, I need to dispel the propaganda being disseminated by the Irish elite which says: “Ireland is recovering and if we collaborate with the EU and the US, we will all be grand!” In particular, unless Ireland achieves full unity, independence and sovereignty we will be totally powerless to protect ourselves as we are at present.
Respondent
The plutocracy is in control of the USA. The one percent get ninety nine percent of the total income. The one percent are those who are profiting by ownership of stock in the multinational corporations, as workers sink more deeply into poverty and must work for less than living wages. A solution would be to get the plutocrats and their supporters out of the government, which is a complicated and difficult task. .
Ireland’ is not unlike other countries where the rich control the government. Note the government wants the citizens to pay for water, while oil and gas companies may simply take the country’s resources.
My Reply
As Connolly pointed out and history since his death shows, in order for the Irish people to take control of our own affairs and our future destiny, the Irish capitalists, unionist and “nationalist”, must be defeated. They are puppets of external interests. This is becoming Increasingly clear.
The US capitalists have huge interests in Ireland-multinational manufacturers, financial services etc. In addition to investments in Ireland, the EU powers effectively control the 26-county government. This is the result of successive EU treaties, culminating in the EU Fiscal Treaty. Of course the British state continues to control the 6-counties. This was made explicitly clear when courts in London and Belfast decided that there was no binding requirement for the British government to even formally consult the “devolved administration” on Brexit.
The capitalist regimes of the US, the Franco-German Alliance and the United Kingdom have huge interests in Ireland. They are totally committed to supporting the Irish elites and the partition system through which these elites rule.
To achieve Irish unity and sovereignty, an alliance of Irish socialists and republicans must defeat all these forces.
This is the most effective way in which we can help the American working class remove the American 1% and their representatives from power
—————————————————————————————————————-
As Stock Markets Crash, Michael Roberts Analyses the Significance
https://wp.me/pKzXa-ua
IS This 1937, 1987,or 2007?
Michael Roberts
Yesterday, the US stock market fell by the most in one day since mid-2007, just before the credit crunch, the banking crash and the start of the Great Recession.
Is history set to repeat itself? Well, the old saying goes that history never repeats itself but it rhymes. In other words, there are echoes of the past in the present. But what are the echoes this time. There are three possibilities.
This crash will be similar to that 1987 and be followed by a quick and decisive recovery and the stock market and the US economy will resume its recent march upward. The crash will be seen as blip in the recovery from the Long Depression of the last ten years.
Or this could be like 2007. Then the stock market crash heralded the beginning of the mightiest collapse in global capitalist production since the 1930s and biggest collapse in the financial sector ever – to be followed by the weakest economic recovery since 1945.
Or finally it could be like 1937, when the stock market fell back as the US Fed hiked interest rates and the ‘New Deal’ Roosevelt administration stopped spending to boost the economy. The Great Depression resumed and was only ended with the arms race and the entry of the US into the world war in 1941.
Now I have discussed the relationship between the stock market (fictitious capital as Marx called it) and the ‘real’ economy of productive capital in posts before.
On the day of the crash, a new Fed Chair Jerome Powell was sworn in to replace Janet Yellen. Powell now faces some new dilemmas.
Marx made the key observation that what drives stock market prices is the difference between interest rates and the overall rate of profit. What has kept stock market prices rising has been the very low level of long-term interest rates, deliberately engendered by central banks like the Federal Reserve around the world, with zero short-term rates and quantitative easing (buying financial assets with credit injections). The gap between returns on investing in the stock market and the cost of borrowing to do it has been huge.
Of course, every day, investors make ‘irrational’ decisions but, over time and, in the aggregate, investor decisions to buy or to sell stocks or bonds will be based on the return they have received (in interest or dividends) and the prices of bonds and stocks will move accordingly. And those returns ultimately depend on the difference between the profitability of capital invested in the economy and the costs of providing finance. If stock prices get way out of line with the profitability of capital in an economy, then eventually they will fall back. The further out of line they are, the bigger the eventual fall.
So there are two factors that are key to judging whether this stock crash is a 1987, 2007 or 1937 situation: the profitability of productive capital (is it going up or down?); and the level of debt held by industry (will it become too expensive to service?).
In 1987, the profitability of capital was on the rise. It was right in the middle of the neo-liberal period of rising exploitation of labour, globalisation and new tech developments, all of which were counteracting factors at play against the tendency of the rate of profit to fall. Profitability continued to rise right up to 1997. And interest rates, far being hiked by the Fed, were being reduced as inflation fell.
In 2007, profitability was falling (it had been declining since the end of 2005), the housing market was beginning to dive and inflation was expected to rise and along with it, the Fed planned to raise its policy rate, as it is planning now in 2018. But there are differences from 2007 now. The banking system is not so stretched and engaged in risky financial derivatives. And while profitability in most major economies is still below the peak of 2007, total profits are currently rising. It may be that wages are beginning to pick up and this could squeeze profits down the road. Also, the Fed plans to raise interest rates and thus also squeeze profits as debt servicing costs rise.
Perhaps 1937 is much closer to where US capitalism is now. I have written on the parallels with 1937 before. Profitability in 1937 had recovered from the depths of 1932 but was still well below the peak of 1926.
And more worrying now is that corporate debt since the end of the Great Recession in 2009 has not been reduced. On the contrary, it has never been higher. Based on a global sample of 13,000 entities, the S&P agency estimates that the proportion of highly leveraged corporates — those whose debt-to-earnings exceed 5x — stood at 37 percent in 2017, compared to 32 percent in 2007 before the global financial crisis. Over 2011-2017, global non-financial corporate debt grew by 15 percentage points to 96 percent of GDP.
The stock market crash tells me two things. First, that it is the US economy, still the largest and most important capitalist economy, leads. It’s not Europe, not Japan, not China that will trigger a new global slump, but the US. Second, this time any slump will not be triggered by a housing bust or a banking crash, but by a crunch in the non-financial corporate sector. Bankruptcies and defaults will appear as weaker capitalist companies find it difficult to meet their debt burdens and produce a chain reaction.
But history does not repeat but rhymes. The mass of profits in the major economies is still rising and interest rates, inflation and wage rises are still low relative to history. That should ameliorate the collapse in the prices of fictitious capital (and they are still high). But the direction of profits, interest rates and inflation could soon change.
——————————————————————-
World’s richest 500 see their wealth increase by $1trillion (1000 Billion Dollars) this year
Ultra-rich warned of ‘strike-back’ as global inequality hits a 100-year high and billions of poorer people see their earnings stagnate
The Guardian Dec 27, 2017
“The big increase in the fortunes of the ultra-wealthy comes as billions of poorer people across the world have seen their wealth standstill or decline. The gap between the very rich and everyone else has widened to the biggest it has been in a century and advisers to the super-rich are warning them of a “strike back” from the squeezed majority.”
https://www.theguardian.com/inequality/2017/dec/27/worlds-richest-500-see-increased-their-wealth-by-1tn-this-year
Amazon founder Jeff Bezos is the world’s richest person, by $8.3bn. Photograph: Paul Morigi/Getty Images
Rupert NeateWealth correspondent
@RupertNeate
Wed 27 Dec ‘17 15.24 GMTLast modified on Wed 27 Dec ‘17 22.00 GMT
The world’s 500 richest people have increased their wealth by $1tn (£745bn) so far this year due to a huge increase in the value of global stock markets, which are likely to finish 2017 at record highs.
The big increase in the fortunes of the ultra-wealthy comes as billions of poorer people across the world have seen their wealth standstill or decline. The gap between the very rich and everyone else has widened to the biggest it has been in a century and advisers to the super-rich are warning them of a “strike back” from the squeezed majority.
Amazon paid just £15m in tax on European revenues of £19.5bn
Read more
The globe’s 500 richest people, as measured by the Bloomberg billionaires index, have seen the value of the wealth increase by 23% so far this year, taking their combined fortunes to $5.3tn. The increase is largely the result of booming stock markets. The MSCI World Index and the US Standard & Poor’s 500 are both up almost 20% so far this year. The UK’s FTSE 100 is up more than 6% – and hit a new closing high of 7,620.7 points on Wednesday.
Jeff Bezos, the founder of Amazon, is the world’s richest man. His fortune has increased by $34.2bn so far this year to take his “net worth” to $99.6bn. On just one day in October Bezos’s fortune increased by $10.3bn, when Amazon posted profits much higher than analysts had expected and the company’s shares spiked.
Bezos,53, who founded Amazon in his Seattle garage in 1994, owns 16% of the retailer. He also owns all of space exploration company Blue Origin and the Washington Post newspaper, which he bought for $250m in 2013.
Bill Gates, Jeff Bezos and Warren Buffett are wealthier than poorest half of US
Read more
The Amazon founder’s fortune is $8.3bn larger than that of Microsoft founder Bill Gates, the world’s second richest man. In August Gates donated $4.6bn worth of Microsoft shares to the Bill & Melinda Gates Foundation, the charity he set up with his wife to improve global healthcare and reduce extreme poverty.
Bill and Melinda Gates have donated $35bn since 1994. They donated $16bn worth of Microsoft shares in 1999 and followed it up with another $5.1bn a year later. The Gates Foundation has grown to become the world’s largest private charity.
In 2010 the Gates and Warren Buffett (the world’s third richest person with a $85bn fortune) created the Giving Pledge, a promise to give at least half of their wealth to charity, and called on other billionaires to join them. More than 170 of the world’s richest people, including Mark Zuckerberg, Michael Bloomberg and Lord Ashcroft, have so far signed up. Bezos is not a signatory.
In June Bezos tweeted a request for ideas for a “philanthropy strategy”, asking for suggestions on how he should approach philanthropy. He later tweeted to thank his 400,000 followers for their input and said there would be “more to come”.
15 Jun
Jeff Bezos
✔@JeffBezos
Request for ideas… pic.twitter.com/j6D68mhseL
Jeff Bezos
✔@JeffBezos
pic.twitter.com/LvRG16ZhbF
5:52 PM – Aug 27, 2017
627627 Replies
275275 Retweets
1,9741,974 likes
Twitter Ads info and privacy
Collectively, the world’s five richest people – Bezos, Gates, Buffett, Amancio Ortega, the owner of Zara, and Facebook’s Zuckerberg – hold $425bn of assets. That is equivalent to one-sixth of the UK’s GDP.
The world’s super-rich hold the greatest concentration of wealth since the US Gilded Age at the turn of the 20th century, when families like the Carnegies, Rockefellers and Vanderbilts controlled vast fortunes. There are now 1,542 dollar billionaires across the world, after 145 multimillionaires saw their wealth tick over into nine-zero fortunes last year, according to the UBS / PwC Billionaires report.
Josef Stadler, the lead author of the report and UBS’s head of global ultra-high net worth, said his billionaire clients were concerned that growing inequality between rich and poor could lead to a “strike back”.
A report by Credit Suisse found that the world’s richest 1% people have seen their share of the globe’s total wealth increase from 42.5% at the height of the 2008 financial crisis to 50.1% in 2017, or $140tn.
“The share of the top 1% has been on an upward path ever since [the financial crisis], passing the 2000 level in 2013 and achieving new peaks every year thereafter,” the Credit Suisse global wealth report said. The bank said “global wealth inequality has certainly been high and rising in the post-crisis period”.
The increase in wealth among the already very rich led to the creation of 2.3 million new dollar millionaires over the past year, taking the total to 36 million. “The number of millionaires, which fell in 2008, recovered fast after the financial crisis, and is now nearly three times the 2000 figure,” Credit Suisse said.
These millionaires – who account for 0.7% of the world’s adult population – control 46% of total global wealth that now stands at $280tn. At the other end of the spectrum, the world’s 3.5 billion poorest adults each have assets of less than $10,000 (£7,600). Collectively these people, who account for 70% of the world’s working age population, account for just 2.7% of global wealth.
LD
————————————————
Richest 500 people saw their fortunes increase by $1,000,000,000,000 (1000 Billion=1 Trillion) in 2017
Irish Examiner, Thursday, December 28, 2017 – 06:46 pm
The world’s 500 richest people increased their fortunes by $1tn in 2017 according to the latest Bloomberg billionaires index.
The increases are largely due to increases in the value of global stock markets which are likely to finish the year at record highs.
Today’s Guardian are also reporting that advisers to the super-rich have warned of a “strike back” from the squeezed majority.
The Bloomberg billionaires index shows the combined fortunes of the 500 richest people is now $5.3tn.
The Bloomberg Billionaires Index is a daily ranking of the world’s richest people. Details about the calculations are provided in the net worth analysis on each billionaire’s profile page. The figures are updated at the close of every trading day in New York.
Bloomberg
✔@business
Yeung Kin-Man, chairman of phone touch screen supplier Biel Crystal Manufactory, was the biggest mover on our Billionaires Index. He lost $699 million https://bloom.bg/2lgNpZM
11:19 PM – Dec 26, 2017
Twitter Ads info and privacy
The list as of today reveals Jeff Bezos, the founder of Amazon, is the world’s richest man and that his fortune has increased by $34.2bn to a total of $99.6bn in 2017.
Jeff Bezos
Microsoft founder Bill Gates ($91.6bn) and Warren Buffett ($85bn fortune) are the world’s next richest people.
Two Irish men are listed in the top 500 billionaires index.
At 238 on the list is John P Grayken with a net worth analysis of $6.8bn and a 2017 increase of $1.7bn.
At 472 is Denis O’Brien with a net worth analysis of $4.2bn and a decrease of $95m in 2017.
The Guardian also reveal that collectively, the world’s five richest people – Bezos, Gates, Buffett, Amancio Ortega, the owner of Zara, and Facebook’s Zuckerberg – hold $425bn of assets.
According to the World Bank Ireland’s annual GDP is $294bn.
The Guardian also reports Josef Stadler, the lead author of the UBS / PwC Billionaires report and UBS’s head of global ultra-high net worth, as suggesting his billionaire clients growing concerned at growing inequality and that this could lead to a “strike back”.
View image on Twitter
BBG Billionaires@BBGBillionaires
Tech tycoons triumphed in 2017, adding more than $250 billion to their fortunes https://bloom.bg/2l5IJqI
5:26 PM – Dec 27, 2017
Twitter Ads info and privacy
The Guardian also cite a report in 2015 by Credit Suisse which found the world’s richest 1% people have seen their share of the globe’s total wealth increase from 42.5% in 2008 to 50.1% in 2017.
“The share of the top 1% has been on an upward path ever since [the financial crisis], passing the 2000 level in 2013 and achieving new peaks every year thereafter”.
The Guardian points out that in 2017, 2.3 million new dollar millionaires were created taking the total to 36 million and that these millionaires – who account for 0.7% of the world’s adult population – now control 46% of the total global wealth.
The media group go on to reveal the world’s 3.5 billion poorest adults each have assets of less than $10,000 and that collectively 70% of the world’s working age population, account for just 2.7% of global wealth.
———————————————
EU tax plan ‘is a bigger threat to Ireland than Brexit’
Eoin Burke-Kennedy, Pat Leahy Irish Times Thursday, September 14, 2017, 01:00
Corporation tax harmonisation plans across the euro zone pose a bigger threat to Ireland than the departure of the UK from the European Union, the head of the Irish Fiscal Advisory Council, Dr Seamus Coffey(UCC), has strongly warned
Speaking to the Oireachtas Committee on Budgetary Oversight, the chair of the council, Dr Seamus Coffey(UCC), said Ireland could lose up to €4 billion worth of corporation tax if EU-wide tax rules for multinationals were set.
Full Article
https://www.irishtimes.com/business/economy/eu-tax-plan-is-a-bigger-threat-to-ireland-than-brexit-1.3220094
———————————————————————————————————–
As if Brexit and the possibility of US tax changes do not present enough uncertainty for Irish economic policymakers,new corporate tax proposals set to be discussed by EU finance ministers open up another battlefront for Ireland.-Irish Times
New Threat To Irish Economy International Monetary Fund WARNS OF “UNCERTAINTY” in Irish Economy Due To On-going Changes in Corporation Tax at International Level-
On-going changes in corporate taxation at the international level and discussion of further reforms in the US and the EU are contributing to “uncertainty”.
This is due to “the sizable role of multinationals in the economy and their substantial contribution to the tax base”.
Our diplomats facing a fight in Brussels and it’s not about Brexit
Cliff Taylor, Irish Times, Monday, September 11, 2017, 05:23
As if Brexit and the possibility of US tax changes do not present enough uncertainty for Irish economic policymakers, new corporate tax proposals set to be discussed by EU finance ministers open up another battlefront for Ireland. The big EU countries are putting forward a plan that would transform the basis on which major US companies pay tax in Europe, a move that threatens to undermine one of the pitches Ireland uses to attract major US investors and damage our corporate tax base.
The Financial Times reported this weekend that the French government, with the backing of Germany, Spain and Italy, were presenting a plan that would dramatically change the way big companies pay tax. Big multinationals would be taxed on the basis of turnover, according to the proposal, as opposed to the current system which taxes them on profits. In what appeared a carefully choreographed launch, the European Commission also welcomed the plan.
The background to this is the debate about the extraordinarily low levels of tax paid by many big US companies on their operations in the EU market. Google, Facebook and of course Apple have been in the spotlight, with the European Commission finding in a landmark decision that Apple owed the Irish Government in excess of €13 billion plus interest for unpaid tax.
This, according to the briefings coming from Paris, Berlin and Brussels, is an indication of the scale of cash that could be involved if the big players paid their dues. There have also been a series of disputes involving other companies, including Google, centring on where tax should be paid. This is far from straightforward, with a tax system invented to deal with the taxation of goods struggling in the internet era, where it is often far from clear where tax should be paid.
US companies have used a range of tactics to cut the tax bills they pay on overseas earnings. But they typically operate in the following way. Profits are earned on sales across Europe and a large proportion then flow back to the country where the corporation has its European headquarters. Many have this EU base in Ireland. In turn the actual amount of taxable income is sharply reduced by claiming allowances on foot of the intellectual property used to design, create and market the products.
Offshore tax havens
Typically this has allowed the companies to channel profits out of Europe – after paying small amounts of tax – to offshore tax havens such as the Cayman Island, Bermuda and so on. In turn US tax law allows them to avoid paying American corporation tax on these profits provided they are not returned to the US.
The companies involved have always claimed they operate within the law – and in many cases this may be true. But the cynical gaming of a gap between the US and European tax systems has been pushed to the limit – and beyond. Ireland is only one link in the chain, but through measures such as the now-abolished “double Irish” we have made it easier for US companies to structure their tax avoidance and have thus been in the firing line.
Under proposals overseen by the OECD – the Paris-based body representing all major industrial countries – there have been steps to reform this. These have centred on trying to get companies to pay tax where they have major centres of operation and to crack down on the use of tax havens. This OECD process has risks for Ireland, but as the companies have major operations here the Government has been prepared to support it. In fact, we appear to have benefited as some big players, apparently including Apple, have restructured their operations to Ireland’s advantage.
The plan emerging from Paris is completely different and is another chapter in the battle between the OECD and the EU to control this process. It suggests that companies would pay tax based on sales, or turnover and not profits. As most sales are made in big economies, this would be to the advantage of the big players and the disadvantage of smaller countries such as Ireland.
There will, however, be huge barriers. It is not clear how the EU could impose such a system, when companies everywhere else are taxed on profits. Also, is this just to apply to big US companies, or all large players? Tax changes in the EU also require unanimity and could be blocked by any one country. Ireland will certainly oppose the plan, though it will no longer have the support of the UK, on which it could have relied in the past on this subject.
New uncertainty
The proposal does create new uncertainty, however. Already threatened US tax changes could limit the “push” that the current system gives big multinationals to establish operations outside the US and avoid the 35 per cent corporate profits tax rate on as much income as possible. President Donald Trump wants to cut this rate and also provide an incentive for companies to bring home cash stashed offshore. A plan to penalise companies importing into the US – which would have increased the threat to us – now seems to have been dropped.
Now we also face proposals in Europe that could further undermine our tax advantage, even if Ireland would still have many attractions as a European base. Taxing on the basis of sales could also threaten our corporate tax base, though it is too early yet to judge the extent of this threat. Surging corporate tax has been a boon to the Irish exchequer in recent years, but moves on both sides of the Atlantic suggest we need to be cautious in pencilling in further increases for the years ahead. And just as Brexit is coming to the boil, it seems our diplomats face a new battle in Brussels.
© 2017 irishtimes.com
———————————————
Updated Estimate for Future of the World Economy
Michael Roberts
From Jackson Hole to the Teton Heights
Click here for Graphs and Charts
https://thenextrecession.wordpress.com/2017/08/24/from-jackson-hole-to-the-teton-heights/
The Capitalist Dilemma
“That suggests that increased costs of debt servicing from rising interest rates driven by the Fed’s normalisation policycould tip things over, unless profitability recovers for the wider corporate sector”—–
“On the other hand, the Austrian school of economics as represented by the Bank for International Settlements (BIS), reckons that to keep fuelling the credit bubble with cheap money and QE is presaging yet another financial crash down the road as debt in all the major economies is still too high.”
In previous years, the main theme has been on how to ease monetary policy (ie lower interest rates and print more money) in order to save the banking system and stimulate the capitalist economy into recovery from the Great Recession.At the end of every August, the central bankers of the world meet in the ski resort of Jackson Hole, Wyoming, USA to discuss the state of the world economy and the role of monetary policy in improving it. These central bankers hear presentations from top mainstream academic economists and make speeches on how they see things. This year, the symposium starts today with both Janet Yellen, head of the US Federal Reserve (to be replaced by Trump next year) and Mario Draghi of the European Central Bank delivering an address.
In 2013, the cry was for ‘quantitative easing’ (QE). This was the policy idea that central banks, as the ‘last lender of resort’, would pump money into the economy by buying all sorts of financial assets from the commercial banks and other financial institutions (mainly government bonds, but also corporate bonds, mortgage bonds and even stocks and shares). In this way, they would fill the coffers of the banks with funds to lend on to households and corporations.
This ’unconventional monetary policy’ was adopted by the Fed, the ECB and the Bank of Japan big time. The balance sheets of these central banks rocketed. The US Fed now has $4trn worth of bonds and other assets on its books, funded by the creation of more dollars. The ECB is heading for over $3trn too after it launched another QE program in 2015.
And the BoJ’s QE plans have taken its balance sheet up to 75% of the equivalent of Japan’s GDP!
But has it worked? The answer is no. Back in 2013, the Jackson Hole attendees were told by Vasco Curdia and Andrea Ferrero at the Federal Reserve Bank of San Francisco (Efficacy of QE) that the Fed’s QE measures from 2010 had helped to boost real GDP growth by just 0.13 percentage points and the bulk of this ‘boost’ was thanks to ‘forward guidance’, namely convincing investors that interest rates were not going to rise. If that factor had been left out, the US real GDP would have risen only 0.04 per cent as a result of QE.
Two years later, Stephen Williamson,vice-president of the Federal Reserve Bank of St Louis, issued a study in which he concluded : “There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed – inflation and real economic activity. Indeed casual evidence suggests that QE has been ineffective.”
This ought to have been no surprise because back in the 1930s during the Great Depression, John Maynard Keynes also concluded after a few years that quantitative easing was a failure. Pumping money into the banks did not boost the post-1929 US economy. Eventually, Keynes opted for fiscal spending and government investment as the only policy to get out of the 1930s depression.
Indeed, all QE has done is to create a huge bubble in the stock markets of the world, while economic growth has remained sluggish at average rates less than half before the Great Recession and real incomes for the average household (who had no stocks) flat or falling.
Nevertheless, under the influence of the monetarist school of mainstream economics founded by ‘free market monetarist’ Milton Friedman and expounded by his follower, former Fed chief Ben Bernanke, the central banks continued with QE.
At the beginning of 2016, the fear was that the major capitalist economies were slipping into a debt deflation slump and something new had to be done. Indeed, some central banks resorted to even more desperate measures of not just reducing the ‘policy’ (base) interest rates to zero (ZIRP) but further into negative interest rates (NIRP). In other words, central banks were paying commercial banks to take their new money!
But by the end of 2015, the US Fed, with an economy that was doing slightly better than elsewhere, decided to reverse the easy money policy. The Fed hiked its policy rate in December 2015 for the first time in nine years. Yellen explained that the US economy “is on a path of sustainable improvement.” and “we are confident in the US economy”.
This year’s discussion at Jackson Hole will not be about ‘unconventional monetary policy’ and the efficacy of QE. That has been forgotten and the debate has moved onto how to ‘normalise’ interest rates (raising them) in order to establish control over potentially rising inflation in an environment of ‘full employment’, without provoking a new recession. The title of this year’s symposium is Fostering a Dynamic Economy – apparently the world economy is now ‘dynamic’.
Indeed, all the talk is about how for the first time in ten years since the global financial crash, “a broad-based economic upswing is at last under way. In America, Europe, Asia and the emerging markets, for the first time since a brief rebound in 2010, all the burners are firing at once.” All 45 countries tracked by the OECD are on track to grow this year and 33 of them are poised to accelerate from a year ago.
Neverthless, mainstream economics remains divided about whether it is a good idea for the Fed to continue to hike rates and sell off its QE purchased bonds, as it eventually plans. Keynesians like Larry Summers and Paul Krugman reckon such credit tightening would seriously damage consumer spending and investment and cause another credit crunch. They would prefer to keep the credit bubble going with cheap money, along with some more government spending on infrastructure etc, to avoid ‘secular stagnation’. Summers wrote that “a reasonable assessment of current conditions suggest that raising rates in the near future would be a serious error”.
On the other hand, the Austrian school of economics as represented by the Bank for International Settlements (BIS), reckons that to keep fuelling the credit bubble with cheap money and QE is presaging yet another financial crash down the road as debt in all the major economies is still too high. Credit bubbles lead to ‘malinvestment’ and low productivity. It is better to keep government spending curbed and to hike rates so that money is not spent on useless projects and the credit and stock market bubble is ‘pricked’.
Yellen cites full employment and potentially rising inflation as reasons for hiking interest rates now. But there is little sign of any pick-up in inflation. The so-called Phillips curve, namely the trade-off between low unemployment and higher inflation, beloved by Yellen and the Keynesians alike, is not in operation. It is flatter than eve (see graph below). Phillips was proved wrong in the 1970s when economies experienced, low growth, high unemployment and inflation (‘stagflation’). Now there is high employment (at least on official figure) but low inflation, low growth and low wages – stagnation.
The reality is that cutting or hiking interest rates has little effect on capitalist economies compared to the level of profitability in the capitalist sectors of the world economy. If profitability is improving, then interest rates could rise with little impact on the ‘real economy’, even if the stock market falls back. It is the profitability of capital that matters and from there to investment and growth.
In a recent post, I pointed out that both US and global corporate profits has staged something of small recovery in the last few quarters. But US domestic corporate profits have grown at an annualized rate of just 0.97% over the last five years. Prior to this period, five-year annualized profit growth was 7.95%. And profitability (profit as a percentage of capital invested) in the US is some 6% below its peak in 2006 before the Great Recession and after recovering to that peak by 2014, has been falling for the last two years (according to my calculations from AMECO data).
Moreover, at $8.6 trillion, US corporate debt levels are 30% higher today than at their prior peak in September 2008. At 45.3%, the ratio of corporate debt to GDP is at historic highs, having recently surpassed levels preceding the last two recessions. That suggests that increased costs of debt servicing from rising interest rates driven by the Fed’s ‘normalisation’ policy could tip things over, unless profitability recover for the wider corporate sector.
Jackson Hole was so named because it was set in a deep valley between the peaks of the massive Teton mountains. Will the central bankers there be right that the world economy is finally getting out of its hole and heading to the heights of the Tetons? We shall see.
————————————————–
Trump targets Irish jobs with ‘America First’ policy
“But we’re going to be getting a lot of companies moving back and we’re going to get very few companies leaving the United States,” he said.
As a rich Irish hotel owner, he notes that, unlike the general population, he wasn’t required to pay any extra tax during the recession!!!
“ I own great property in Ireland that I bought during their downturn. And I give the Irish a lot, a lot of credit,” Mr Trump told ‘The Economist’. “They never raised their taxes. You know you would have thought when they were going through that really … they would’ve double and tripled their taxes. They never raised it a penny.”
Irish Independent EDITORIAL
May 12 2017 2:30 AM
A pat on the head and a knife in the back.
The Donald thinks Ireland did an “amazing job” in handling the financial crisis. He said he gives Ireland “a lot, a lot of credit” for not raising taxes during the downturn period.
The US president said that as a result the country is “thriving” and a lot of companies have moved here.
“You look at Ireland. I own great property in Ireland that I bought during their downturn. And I give the Irish a lot, a lot of credit,” Mr Trump told ‘The Economist’. “They never raised their taxes. You know you would have thought when they were going through that really … they would’ve double and tripled their taxes. They never raised it a penny.”
Mr Trump has his own difficulties now with reducing taxes and his plan appears to have stalled before even getting out of the traps.
Nonetheless, he is adamant he will target US firms who have moved abroad or are intending to do so.
And he warned he will actively lure American multinational companies home from Ireland.
“But we’re going to be getting a lot of companies moving back and we’re going to get very few companies leaving the United States,” he said.
Whether he’s talking about firms engaged in tax inversion or companies operating in Ireland to serve the European market is not clear.
However, Mr Trump is adamant he’s going to push ahead with his ‘America First’ policy on jobs going abroad.
Irish Independent
——————————————————————————-
International Monetary Fund WARNS OF “UNCERTAINTY” in Irish Economy Due To On-going Changes in Corporation Tax at International Level-Recommends Increase in Unfair Dwellings Tax (LPT)
On-going changes in corporate taxation at the international level and discussion of further reforms in the US and the EU are contributing to “uncertainty”.
This is due to “the sizable role of multinationals in the economy and their substantial contribution to the tax base”.
Among potential tax changes in the US is President Donald Trump’s wish to reduce the American corporate tax rate from 35pc to 15pc.
Irish Independent 13/05/17
“Brexit represents the most pressing and far-reaching challenge for Ireland.
“While the impact to date has been modest, the overall effects over the medium term are expected to be negative and significant.”
Risks are said to be most acute for traditional sectors depending on trade with the UK such as agri-food and tourism.
The report says that the special issues related to the border with Northern Ireland have also been recognised and “The authorities are actively engaging with partners in the UK and across Europe, and working domestically to develop a set of measures to respond.”
“Ensuring timely and well-targeted action will be key,” the IMF advises.
Ongoing changes in corporate taxation at the international level and discussion of further reforms in the US and the EU are contributing to “uncertainty”.
This is due to “the sizable role of multinationals in the economy and their substantial contribution to the tax base”.
Among potential tax changes in the US is President Donald Trump’s wish to reduce the American corporate tax rate from 35pc to 15pc.
The uncertainty “further reinforces the need for a broad tax base, large fiscal buffers, and continuing efforts to reinforce the dynamism of the domestic economy,” the IMF found.
———————————————————————————————–
Drift to New World Economic Crash and Inter-Imperialist Conflict Continues
The office of the US Director ofNational Intelligence (DNI) reckons that things are not going to get better. “The next five years will see rising tensions within and between countries. Global growth will slow, just as increasingly complex global challenges impend.”–More further down
New Line Up In Inter-Imperialist Economic Conflict Begins to Emerge at Group of Top Twenty Capitalist Countries ( G20)
-US and Japan on One Side, EU and China on the Other
From Financial Times-Printed in Irish Times March 20,2017
http://www.irishtimes.com/business/economy/us-stance-on-trade-forces-rest-of-g20-to-wait-1.3017269
————————————
Richest 20 Capitalist Countries Retreat From Free Trade !!!
Drift to New World Economic Crash and Inter-Imperialist Conflict Continues
The office of the US Director ofNational Intelligence (DNI) reckons that things are not going to get better. “The next five years will see rising tensions within and between countries. Global growth will slow, just as increasingly complex global challenges impend.”
The Global Paradox by Michael Roberts Marxist Economist
Most people missed it but America’s intelligence services also looked recently at developments in the world economy. The Office of the Director of National Intelligence (DNI) published its latest assessment, called Global Trends: The Paradox of Progress, which “explores trends and scenarios over the next 20 years”.
The DNI concludes that the world is “living in paradox – industrial and information age achievements are shaping a world both more dangerous and richer with opportunity. Human choices will determine whether promise or peril prevails.” The DNI praises capitalism over the last few decades for “connecting people, empowering individuals, groups, and states and lifting a billion people out of poverty in the process.”
But American capital’s eyes and ears are worried about the future. There have been worrying “shocks like the Arab Spring, the 2008 Global Financial Crisis, and the global rise of populist, anti-establishment politics. These shocks reveal how fragile the achievements have been, underscoring deep shifts in the global landscape that portend a dark and difficult near future.” All these developments are bad things for global capital and American supremacy, it seems. And the DNI reckons that things are not going to get better. “The next five years will see rising tensions within and between countries. Global growth will slow, just as increasingly complex global challenges impend.”
What is the answer? Well, this comment from the DNI report is unvarnished: “It will be tempting to impose order on this apparent chaos, but that ultimately would be too costly in the short run and would fail in the long. Dominating empowered, proliferating actors in multiple domains would require unacceptable resources in an era of slow growth, fiscal limits, and debt burdens. Doing so domestically would be the end of democracy, resulting in authoritarianism or instability or both. Although material strength will remain essential to geopolitical and state power, the most powerful actors of the future will draw on networks, relationships, and information to compete and cooperate. This is the lesson of great power politics in the 1900s, even if those powers had to learn and relearn it.”
In other words, while it would be better to just crush opposition and “impose order” in America’s interests, this is probably not possible with a weak world economy and lack of funds. Better to try “draw on networks, relationships and information” (ie spy and manipulate) to get “cooperation”.
But it is not going to be easy to sustain America’s dominance and the rule of capital, the DNI report concludes, as globalisation “hollowed out Western middle classes (read working classes) and stoked a pushback against globalization.” Moreover, “migrant flows are greater now than in the past 70 years, raising the specter of drained welfare coffers and increased competition for jobs, and reinforcing nativist, anti-elite impulses.” And “slow growth plus technology-induced disruptions in job markets will threaten poverty reduction and drive tensions within countries in the years to come, fueling the very nationalism that contributes to tensions between countries.”
You see, the problem is that the population of America and its capitalist allies are getting older and the new powers have younger, more productive populations. Yet capitalism cannot deliver for these growing populations in the so-called ‘developing countries’. Meanwhile, “automation and artificial intelligence threaten to change industries faster than economies can adjust, potentially displacing workers and limiting the usual route for poor countries to develop.” And then there is climate change and environmental disasters that will entail. This is all going to “make governing and cooperation harder and to change the nature of power—fundamentally altering the global landscape.”
So it is not a pretty picture beneath all the optimistic talk and fanfare we heard from the rich elite at Davos only last month. Instead, the DNI reckons “challenges will be significant, with public trust in leaders and institutions sagging, politics highly polarized, and government revenue constrained by modest growth and rising entitlement outlays. Moreover, advances in robotics and artificial intelligence are likely to further disrupt labor markets.” The DNI tries to sound hopeful at the end of this litany of dangers to global capitalism but they are not convincing.
I have posted before about the clear signs that the age of globalisation and capital’s expansion at the expense of labour everywhere appears over. Another indicator of this was a report from the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics. The report found that trade misinvoicing and tax havens mean the world’s givers are more like takers. The GFI tallied up all of the financial resources that get transferred between rich countries and poor countries each year: not just aid, foreign investment and trade flows but also non-financial transfers such as debt cancellation, unrequited transfers like workers’ remittances, and unrecorded capital flight (more of this later). What they discovered is that the flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction.
In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other words, developing countries sent $2tn more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to $16.3tn – that’s how much money has been drained out of the global south over the past few decades.
Developing countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London, on a scale that dwarfs the aid that they received during the same period. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home. But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. GFI calculates that developing countries have lost a total of $13.4tn through unrecorded capital flight since 1980.
Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions, a practice known as “trade misinvoicing”. Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade misinvoicing, which outstripped aid receipts that year by a factor of five.
But now global trade growth has slowed to a trickle and capital flows are also falling back. It has become just that more difficult for multi-nationals and banks to exploit the global south as a way to boost profitability from its decline in the global north.
The ratio of import growth to real GDP growth in the major economies has fallen back sharply.
The DNI report suggests that increased rivalry over the spoils of imperialism in the 1900s led to a world war. The DNI reckons that “Although material strength will remain essential to geopolitical and state power, the most powerful actors of the future will draw on networks, relationships, and information to compete and cooperate”. Compete and cooperate? And Trump in the presidency?
Italy Increasingly Likely To Abandon The Euro
By David on 6 February 2017
‘An analysis of the political setup in Italy shows eurosceptics are on the verge of taking control of the country.
The only missing ingredient is an early election. And early elections are now the odds-on favorite.
Let’s back up a bit to fill in the pieces as to how things got to this point.’
TRUMP TIME!
Right Wing Pro-Capitalist Economists Prof Colm McCarthy, Dan O’Brien Highlight Economic Risks to Irish Economy and European and Strip Away the Government Spin!
All The Conditions for A Perfect Storm are on the Horizon-O’Brien
Trump card could see off Ireland’s run of good luck-McCarthy
President-elect’s policies threaten our position in the transatlantic economy
If Trump governs as he campaigned, Irish jobs will be lost, tax revenues will fall and fears for debt sustainability could emerge
Dan O’Brien, Sunday Indepandent PUBLISHED13/11/2016 | 02:30
Donald Trump got fewer votes not only than Hillary Clinton in last week’s election, but fewer votes than Republican candidate Mitt Romney in 2012. Although he did better than I expected, or predicted, there was no surge in support for the president-elect, as much of the media narrative has suggested.
The reason he won, despite losing Republican votes on four years ago, is because the Democratic vote collapsed. Barack Obama garnered four million more votes in 2012 than Clinton did this year.
As is often the case in elections, turnout explains outcomes. With just over half of the eligible electorate going to the polls – the lowest in 16 years – it was the collapse in the Democratic vote that handed Trump the presidency, not a “redneck revolution”, as has been said so often since the results started coming in.
But despite losing the popular vote, Trump won the electoral college. Four years of President Trump loom. Both his stated policies and his personality pose real threats to Ireland.
Already the issue of corporation tax has received much attention in Ireland. There is good reason for the huge attention that is focused on this issue when anything that is perceived as a threat to it arises. Although some people don’t like to hear it, corporate American is the most dynamic, innovative and export-oriented part of this economy. It was the surge of US companies into Ireland in the 1990s that powered the explosive growth of the Celtic tiger.
There are tens of thousands of people employed by US companies in Ireland. Anything that threatens the continued presence of US multinationals here threatens the foundations of Irish prosperity.
The most important reason for those companies to be here is access to Europe’s single market of 500 million people – Ireland is a platform for pharmaceutical, technology and financial firms to sell to their European customers. But they also use Ireland as a base to sell into their own market. US companies here export huge quantities of goods and services back to their home country.
Protectionists such as Trump, and others besides, ask why American companies do not employ Americans to make stuff that is sold in America.
And there is a lot of stuff. Last year, goods worth €27bn were shipped from Ireland to the US, while Ireland bought just €10bn from the US (for the protectionist-minded, such a huge imbalance is a sure sign of “unfair” trade). The value of services sold from here to there stood at €8.5bn in 2014, the most recent year for which figures are available.
Although a detailed breakdown by the nationality of exporting firms is not available, many, if not most, of these exports are likely to be accounted for by US companies given that US companies dominate the Irish exporting sector.
Trump said repeatedly during the campaign that he wanted to bring jobs home. The jobs of people employed here in US companies to produce goods and services for Americans would appear to be most at risk of being targeted. And they are at risk not only as a result of things that the new US administration could do to bring them back, but also from the danger of transatlantic trade disputes.
As a member of the EU, the terms of all of Ireland’s trade with non-EU countries is not determined nationally. That means, for instance, that import taxes on American goods coming into Ireland and restrictions on things such as genetically modified foods are decided in Brussels collectively. US imports come into Ireland on identical terms as they enter every other EU member country.
The arrangement is underpinned by EU and US membership of the World Trade Organisation. Last July, Trump threatened to withdraw the US from the WTO, which he called a “disaster”, if membership were to prevent him sanctioning US companies which invest abroad.
But even if that does not happen, the terms of transatlantic trade could be disrupted. There are already some serious EU-US disputes, most notably on – yet again – the taxing of US multinationals. These could widen and deepen. Retaliatory measures hindering transatlantic trade cannot be ruled out given the sort of anti-trade rhetoric Trump used repeatedly during the campaign, his temperament, his penchant for seeking revenge against those who cross him (read his Twitter feed) and the hard-ball nature of his negotiating style.
But it is not only transatlantic trade that is at risk. The logic of the calls to bring jobs home extends more widely.
Instead of servicing the European market from Europe, why don’t American companies do so from their home base?
There are lots of reasons – from avoiding existing tariffs to time zone issues – for US companies to be based in Europe. But one of them is the US corporate tax rate, which is the highest in the rich world. Because of this high rate, it makes more sense to book profits in lower-tax Europe, and very low tax Ireland, than in the US.
The chances of the tax rate falling sharply have risen following the outcomes of both the presidential and congressional elections (but it is by no means a done deal because Republicans are far short of the 60 seats in the senate which prevents the minority from blocking legislation).
If a big cut is agreed, it would certainly impact Ireland. The incentive for new firms to come here would be reduced, as would the incentive for firms already here to invest more. That alone is unlikely to lead to a “flood” of companies leaving Ireland, as one of Trump’s economic advisers told Newstalk radio on Friday. But it would change the dynamic in the future, and not in a good way, for Ireland.
But tax is not the only concern. If Trump wants or needs to be able to point to concrete evidence of how he is bringing jobs home, he may lean on companies – as the Obama admiration did earlier this year when it changed rules retroactively to block a (legal) tax manoeuvre by drugs company Pfizer to redomicile itself in Ireland.
It is also worth making the point that one of the many ways Trump is different from his recent predecessors is that he is not beholden to corporate interests. As he did not seek campaign contributions from business over the past 15 months, he doesn’t owe favours to donors – something that is often highly significant in executive decision-making and the formulation of legislation in the US.
Yet another impact of a change in the rate and rules around US corporation tax is how much revenue is raised here. Last year, the amount of profit tax paid to the Exchequer rose by 50pc, or €2.4bn in hard cash terms. This windfall, which almost certainly came from US corporates, was spent by the Government. That spending is now locked in to future spending commitments. If the €2.4bn were to disappear as fast as it appeared, a huge hole would open in the Government’s finances.
A final point. The jump in Irish GDP last year of 26pc – dubbed leprechaun economics – appears to have been caused by US multinationals making changes to the structure of their global balance sheets at the stroke of a pen.
While this had no real effect on economic activity, it did make Ireland’s mountainous public debt – the most closely watched indicator of a state’s indebtedness is the amount it owes relative to GDP – seem smaller.
If congress and the White House can agree on making the US tax system more similar to other developed countries, the moves that brought leprechaun economics about could easily be reversed. That would send Ireland’s debt ratios soaring back to previous highly elevated levels.
With the domestic economy slowing, the effects of Brexit being felt already via the exchange rate, and now the potential for multiple negative consequences arising out of a Trump presidency, the prospects of the Irish economy in the short, medium and longer terms have deteriorated.
The conditions for a perfect storm are all on the horizon.
——————————————-
Trump card could see off Ireland’s run of good luck
Fortune helped the Irish economy in recent years but there are signs this happy spell may end soon
Colm McCarthy
Sunday Independent PUBLISHED13/11/2016 | 02:30
Trump’s victory is the second political surprise of 2016 with negative consequences for Ireland, following the UK’s Brexit decision at the end of June. There could be further negative surprises from European electorates in 2017.
Unfortunately the response from the Irish Government has been a further postponement of budget balance in the measures announced on October 11, followed by an apparent willingness to borrow more to meet public service pay demands. If the economy slows down, the public finances could worsen again very quickly.
The recovery in the Irish economy over the past few years is due in large degree to a run of pure good luck. There have been three favourable influences, all the result of external developments rather than the fruits of domestic policy. The three are:
(i) lower energy costs – Ireland is a big importer of energy, so when oil and other energy prices fall, Ireland benefits a lot;
(ii) a lower value for the euro, until recently, against both sterling and the dollar. Ireland has substantial trade outside the Eurozone, so a weaker euro helps;
(iii) lower costs for governments as they re-borrow debt coming up for repayment – Ireland has heavy debt, so low interest rates flatter the budget numbers.
The pace of economic recovery in Ireland since the dark days of 2011 and 2012 has exceeded expectations. A recovery was always likely at some stage, but it has been faster than in most other developed countries. The lucky run could be coming to an end. Oil and other energy costs seem to have found a bottom. The euro has jumped since June against sterling. Interest rates on government borrowing have already risen a little and could head further north in 2017.
A risk-averse government, conscious of the over-borrowed state of the public finances, would have responded with a series of cautious budgets. Instead the minority administration has signalled its willingness to contemplate extra borrowing to finance budget give-aways and public service pay increases.
If oil prices stay low, the euro is weak and the Government can re-borrow at low cost, then growth could continue and everything might work out fine. But there are no guarantees and all three indicators could head in the wrong direction together.
Trump’s election makes things worse. One scenario is that a Trump administration will opt for budget and monetary policies which will weaken the dollar, either accidentally or on purpose. A weak dollar will erode further the competitiveness of Irish firms, already hit hard by the decline in sterling. Trump has campaigned on a protectionist platform and will hardly worry too much about dollar weakness, since it complements nicely a more aggressive trade policy.
The likelihood of a big cut in corporate taxes in the USA, perhaps to 15pc, has increased and it could happen soon. That would leave Ireland’s key industrial strategy weapon, the 12.5pc tax rate, under siege from both east and west. Britain’s new chancellor Philip Hammond has been hinting at a further cut in its 20pc rate, so Ireland’s relative attractions can hardly survive, even without further action from the EU where the departing British have been defenders of member state independence in tax policy.
The official mantra that ‘the multinationals are not here solely for the tax breaks’ is about to be tested and may be found wanting. Many US firms feel they must have operations somewhere in Europe and choose Ireland because it has the best tax deal, but Ireland, it is regularly asserted, also has plentiful availability of skilled labour, low non-wage costs and a pro-business political climate.
But international comparisons of educational attainment from the OECD tell a different story. Irish schools may not be all they are cracked up to be. Energy costs are high by European standards and look way out of line relative to the USA. Particularly in Dublin accommodation is expensive and is beginning to fuel pay demands. The tax take on middle and higher incomes is more onerous than in the UK and several other European countries.
Without corporation tax advantages, how many incoming US multinationals will choose Ireland? How many will seek European locations at all if the full array of Trump’s policy proposals gets to be implemented?
Trump’s election victory could have political consequences in Europe just as significant as the corporate tax changes and the shift to protectionism. The credibility of right-populist parties has been enhanced and the first test will be in France next April and May. The National Front’s Marine Le Pen is now priced shorter (7/4 against) than Donald Trump was last Monday.
This is important for one simple reason. Marine Le Pen is committed to France’s withdrawal from the euro, on one occasion promising to quit the common currency on her first day in office. It would be rather more complicated than that, but a Le Pen victory could trigger a re-run of the ‘will the euro survive’ speculation that so destabilised European sovereign bond markets in 2010 and again in 2012. An actual French departure would spell the end of the common currency project.
For good measure there are elections in Germany and the Netherlands next year and the Italian government could fall if it loses a referendum due three weeks from today. The calm of the past few years in Eurozone financial markets should fool nobody – the fundamental strains are still there, including over-borrowed governments, fragile banks and weak economies. The soothing balm of the ECB’s easy money medicine cannot be applied indefinitely.
The objection to a new public service pay round is not that the Government is unable, currently at any rate, to borrow the extra money. It is that now is not a smart time to be letting the budget deficit, which should already have been eliminated, start to run back up again.
The recovery is proceeding, although there are some early signs of a weakening in major headings of tax revenue. It could come to an early halt for reasons beyond the Government’s control, and at a time when the sovereign debt market could have turned against heavily indebted borrowers. This adverse scenario might never happen but every month that passes seems to shorten the odds.
There is no reason why public-service trade unions should not aspire to improvements in pay and conditions in the years ahead and the ambition is a natural consequence of the pay cuts imposed in response to the 2008 financial crash. Those cuts were applied in a manner which created grievances that were bound to resurface.
The trouble is the timing, which the unions are seeking to accelerate with Friday’s deadline-setting intervention from SIPTU.
A public service pay commission has been established tasked with a comprehensive fact-finding review. There is something a little suspect about the unseemly haste on the trade union side: it looks like a rush to agree an across-the-board pay round before this commission has reported.
The minority Government has every incentive to talk tough and capitulate. Better to threaten a general election unless the public-service unions agree to await the findings of the pay commission.
Global turbulence ahead-Michael Roberts, Economist
Analysis https://thenextrecession.wordpress.com/2016/09/29/global-turbulence-ahead/
The (world economic growth) spiral is not upwards, it is downwards. Downwards on trade, downwards on productivity, downwards on global growth.”-OECD
World Debt Hits 152 trillion,a record breaking level of debt, says International Monetary Fund (IMF)
This coming week sees the start of the semi-annual meeting of the IMF and World Bank in New York. This is an opportunity for the world’s economic strategists to review the state of the major world economies. And it’s not good news. Earlier this month, the OECD, which looks after the world’s top 30 economies, reported in its ‘interim economic forecast’ that global GDP growth (including India and China) would be flat around 3% in 2016 with only a modest improvement projected in 2017. Overall, the OECD reckoned that the world economy “remained in a low-growth trap with persistent growth disappointments weighing on growth expectations and feeding back into weak trade, investment, productivity and wages.” Catherine Mann, chief economist at the OECD, said: “Action was needed to lift the global economy out of a low-growth trap”, she said. “The spiral is not upwards, it is downwards. Downwards on trade, downwards on productivity, downwards on global growth.”
As for world trade, prior to this weekend’s IMF meeting, its economists published a chapter from its upcoming World Economic Outlook in which they argued that one of the features of the current slow growth (depression) was the unprecedented decline in world trade growth. “Since 2012, growth in the volume of world trade in goods and services has been less than half the rate during the preceding three decades. It has barely kept pace with world GDP and the slowdown has been widespread. The IMF economists calculate that this slow trade is mostly a symptom of the sluggish economic recovery. “Indeed, up to three-fourths of the shortfall in real trade growth since 2012 compared with 2003–07 can be traced to globally weaker economic growth, notably subdued investment.”
Full Analysis by Michael Roberts, Marxist Economist
https://thenextrecession.wordpress.com/2016/09/29/global-turbulence-ahead/
————————
World Debt Hits 152 trillion,a record breaking level of debt, says International Monetary Fund-Finacial Times 05/10/2016
-GERMAN BANKING CRISIS REDUCED IRISH GOVERNMENT OWNED BANK ASSETS BY 700 Million Euro
ITALIAN BANKS IN DEEP TROUBLE
SundayIndependent 02/10/2016
“With an estimated €360bn of bad loans – about a fifth of their entire loan books – most of the major Italian banks need to raise fresh capital. With Italian bank shares on the floor, the share price of the largest Italian lender Unicredit is down by almost two-thirds since the start of the year – this fresh capital can only come from the government.”
“The ECB and the Commission want Italy to follow the example of Cyprus in 2013 and “bail in” (that is, impose a haircut) depositors as part of any bank rescues. The Italian government is fiercely resisting these demands. Further complicating matters is the constitutional referendum scheduled for December 4, which has become a proxy vote on the Italian government’s economic policies.”
“The woes of the German banks is one of the major reasons the Euro Stoxx index of leading European bank shares is down 30pc since the start of the year. Not alone has the fall in bank shares shaved €700m off the value of the Irish Government’s remaining 14pc stake in Bank of Ireland, it has also put the kibosh on its plans to sell down some of its 99.8pc AIB shareholding.”
Is Deutsche Bank about to become the next Lehman-The American Bank Collapse which Triggered the last Recession?
US fine of $14 billion has plunged pillar bank into crisis that could go beyond German borders
The woes of the German banks is one of the major reasons the Euro Stoxx index of leading European bank shares is down 30pc since the start of the year. Not alone has the fall in bank shares shaved €700m off the value of the Irish Government’s remaining 14pc stake in Bank of Ireland, it has also put the kibosh on its plans to sell down some of its 99.8pc AIB shareholding.
Irish Times Derek Scally Berlin 30/09/2016
TWO BIGGEST GERMAN BANKS IN DEEP TROUBLE. CHINA- BIGGEST PROPERTY BUBBLE IN HISTORY TO BURST
COMMERZBANK TO CUT NEARLY 10,000 JOBS
DIVIDEND SCRAPPED “FOR THE TIME BEING” in LATEST UPHEAVAL IN GERMAN BANKING
DEUTSCHE BANK:For the question of whether or not Deutsche Bank can survive without a bail-out by the German Government is the only topic most other European bankers want to converse upon.
The thorny issue of whether the mooted $14bn (£10.7bn) fine from American regulators for mis-selling US mortgages will bring the German lender to its knees is, unsurprisingly, a hot topic right now.
HEDGE FUNDS PULL BUSINESS FROM DEUTSCHE BANK
-setting up a potential showdown with German authorities
China’s richest man, real estate magnate Wang Jianlin, has warned the country’s property market is the “biggest bubble in history” — the latest alarm bell to be sounded on the faltering giant economy-Beijing, China-Buisness Inquirer
Wang, the owner of real estate and entertainment conglomerate Wanda, said property prices continue to rise in the country’s big metropolises but fall in smaller cities, which are saddled with huge inventories of unsold new homes.
BRITISH EXPOSURE:British banks have $530bn worth of lending and business in China, including Hong Kong. That is about 16% of all foreign assets held by UK banks.-Financial Times
Read more: http://business.inquirer.net/215723/china-property-tycoon-warns-on-real-estate-bubble#ixzz4LeqEWYP5
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook
—————————-
China —Calamitous Slump on Way?
Huge Exposure of British Banks
Kamal Ahmed Economics editor BBC World Service
China slowdown is global economy’s biggest threat, Rogoff says
The former chief economist of the International Monetary Fund, Ken Rogoff, has told the BBC a slowdown in China is the greatest threat to the global economy.
Ken Rogoff said a calamitous “hard landing” for one of the main engines of global growth could not be ruled out.
“China is going through a big political revolution,” he said.
“And I think the economy is slowing down much more than the official figures show,”
Mr Rogoff added: “If you want to look at a part of the world that has a debt problem look at China. They’ve seen credit fuelled growth and these things don’t go on forever.”
British exposure
Last week, the Bank of International Settlements, the global think tank for central banks, said that China’s debt to GDP ratio stood at 30.1%, increasing fears that China’s economic boom was based on an unstable credit bubble.
The figure was described as “very high by international standards” by the Financial Policy Committee of the Bank of England, which will now test British banks’ exposure to a Chinese slowdown.
British banks have $530bn worth of lending and business in China, including Hong Kong. That is about 16% of all foreign assets held by UK banks.
‘A worry’
“Everyone says China’s different, the state owns everything they can control it,” Mr Rogoff, now Professor of Economics at Harvard, said.
“Only to a point. It’s definitely a worry, a hard landing in China.
IMAGES
“We’re having a pretty sharp landing already and I worry about China becoming more of a problem.
“We’ve taken it for granted that whatever Europe’s doing, Japan’s doing – at least China’s moving along and there isn’t really a substitute for China.
“I think India may come along some day but it’s fallen so far behind in size it’s not going to compensate.”
‘Nervous’
Mr Rogoff said that European economies and the US had to ensure they were “on their feet” before any slowdown started to bite.
“The IMF has marked down its forecasts of global growth nine years in a row and certainly the rumour is they’re about to do it again,” he said.
Beyond China, Mr Rogoff said there was a good deal of uncertainty in the world over issues such as whether Donald Trump or Hillary Clinton will win the US presidential election.
He argued it was difficult to judge what Mr Trump would do if he won, and that a victorious Mrs Clinton might have her plans for infrastructure spending, for example, blocked by the Republican House of Representatives.
“I am certainly nervous, probably much more about a Trump victory, just because of not knowing what’s next,” Mr Rogoff said.
“I don’t like the [protectionist] trade policies of either candidate. I think free trade has benefitted the States immensely in its leadership position. So watching as an economist, this has been a painful election.”
Brexit impact
Mr Rogoff said it was unclear what the impact of Brexit would be on the UK economy as it was not yet possible to define the trade model that would be agreed or judge how well the European economy would be performing at the time Britain leaves the European Union.
Despite praising the Bank of England’s pro-active response to the referendum result, Mr Rogoff said that central banks were in an increasingly invidious position.
Image copyrightAP
“Monetary policy has its limits – it is not a panacea,” he said.
“It is a little bit the fault of central bankers for allowing themselves to take too much credit when things are good, and [then] getting blamed too much when things are bad.
“But monetary policy doesn’t make an ageing economy young, it doesn’t make an economy which is having little innovation suddenly innovate, it doesn’t make an economy with a Zombie banking sector somehow miraculously healthy.
“I have a concern about monetary policy at the moment – that it is being asked to take on roles that it’s not built for. It is being asked to do helicopter money where you just print money and hand it out to people.
“In Europe, central banks are buying up a significant proportion of the corporate debt market – that’s what you do in China, in India, they’re doing that in Japan also.
“There are all sorts of other pressures and I worry in the long run that central banks are losing their independence.”
————————
Bank of International Settlements warns: China banks risk crisis within three years
Irish Times 19/09/
Excessive credit growth is signalling an increasing risk of a banking crisis financial watchdog says
People’s Bank of China (PBOC), the central bank, in Beijing. Debt has played a key role in shoring up China’s economic growth following the global financial crisis.
Excessive credit growth in China is signalling an increasing risk of a banking crisis in the next three years, a report from the Bank for International Settlements (BIS) says.
An early warning of financial overheating – the credit-to-GDP gap – hit 30.1 in China in the first quarter of this year, the financial watchdog said in a review of international banking and financial markets published on Sunday. Any level above 10 signals a crisis “occurs in any of the three years ahead,” the BIS said.
———————————————————
Prof Colm McCarthy Confirms Huge Crisis for 26-County Elite and mainstream Irish Political Parties after Apple Tax Ruling in the context of Brexit- Ireland isolated in the EU
As I pointed out on this blog some weeks ago (see below), the UK has already announced a reduction of its corporation tax rate to 20% and the Adam Smith Institute has recommended a UK rate of zero after Brexit.
As pointed out by Colm McCarthy, this makes it more urgent for the EU to clamp down on anything resembling a tax haven such as Ireland
Colm may be exaggerating the common interests of the UK and Irish elites. The UK has come out in favour of the EU commission on the Apple Ruling. When the United States, the Franco-German Alliance and the UK come to a final decision on corporation tax in the OECD BEPS Process, the interests of the Irish elite will count for little. The interests of the Irish People will count for even less!
Recovery of Irish sovereignty is the only protection for the Irish people
http://www.independent.ie/opinion/columnists/colm-mccarthy/ireland-has-no-special-place-in-the-affections-of-our-allies-in-europe-35039127.html
Extracts from McCarthy Article 11/09/2016
“This (Brexit) matters greatly for both economic and political reasons. Britain remains Ireland’s most important trading partner, shares concern in the peaceable resolution of the Northern Ireland conflict and is the only major European country with a narrow self-interest in the success of the Republic of Ireland.
The EU without Britain will become once again a continental and essentially Franco-German political project, as it was at its inception.
Ireland has ended up in a framework for its external relations, with no currency and in membership of a Britless EU, which it would hardly have chosen as the most congenial outcome.
To make matters worse, the European Commission’s target in the corporate tax war is the United States, Ireland’s principal source of foreign investment and another country with self-interested reasons to accommodate Irish interests.”
—————————–
Is the OECD an independent expert international body which can be relied upon to deal fairly with the national interest of the Irish People in taxation and other economic matters?
Fine Gael, “Endapendents”, Fianna Fáil, Labour are all supportive of the OECD Corporate Taxation Initiative: Base Erosion and Profit Shifting (BEPS). Even Sinn Féin included the following in its Dáil amendment rejecting the Government decision to appeal the Eu ruling on illegal state aid to Apple: (Sinn Féin) “strongly supports the ongoing work of the Organisation for Economic Co-operation and Development (OECD) and others to tackle aggressive tax planning and harmful tax practices and in combatting the negative impact of tax avoidance on the global economy and the developing world in particular;”
The material carried below shows that the OECD is an economic self-interest organisation of pro-western capitalist countries dominated by the US, Japan, UK, Australia and the major EU countries including Germany and France. 23 of the 35 are either NATO Members or have other Mutual Defence treaties with the US. A further 5 including Ireland are members of EU only. Russia and China are not members. South Africa is not a member and there are no “third world” countries in membership
The proposition that the economic interest of the Irish people and of “third world” countries should be placed in the hands of such a body is, at best, foolhardy and, at worst, treacherous. Clearly, the big capitalist powers are using the OECD to enable them to “corner” a much bigger share of corporation tax in the now extremely globalised economy.
The Corporation Tax: Base Erosion and Profit Shifting (BEPS) proposals of the OECD will soon force multi-national companies to pay tax on their activities in each country including profits on sales of their products in each country, to that country. As sales in Ireland are but a tiny fraction of world-wide sales of multi-national companies based in Ireland, the corporation tax revenue of this state is under serious threat. The 12.5% rate will not change but it will apply to a much smaller share of profits!
Worse still!! The incentive for multi-national companies to stay in Ireland or to set up in Ireland will be much reduced. This has huge implications for employment in Ireland and for revenue from PAYE and VAT. Already, many countries, including the UK have announced reductions in their corporation tax rates in a race to the bottom.
At a recent two day meeting in Bratislava, EU finance ministers including Minister Noonan discussed the implementation of the OECD proposals in the EU. A document introduced by the EU President includes a proposal for “further cross-border harmonisation of tax rules”, binding tax rulings by the EU, and advance pricing agreements. According to Irish Times the document states that while recent changes in international tax rules by the OECD process were much needed, “coherent implementation of such measures in the form of hard law within the EU” eliminates uncertainty and possible double taxation (of multi-nationals). It is not surprising that Noonan is increasingly isolated. Successive governments have put Ireland totally in the hands of big capitalist powers and multi-nationals.
EU Economics Commissioner,Mr Moscovici has warned that the commission will “go further” in its fight against tax avoidance, as European finance ministers gathered in Bratislava for the first time since the commission’s ruling on Apple
Speaking on his way into the meeting, at which new proposals for further harmonisation of tax rules across the European Union will be discussed, the French commissioner said he fully supported his colleague Margrethe Vestager in her finding against Ireland.
“We are not a politicised commission we are a political commission with a political will, and this political will is clearly to fight tax evasion, tax fraud and aggressive tax planning,” he said.
“We are going to go further, with proposals such as a relaunch of the CCCTB (common corporate tax base) and the establishment of a European black-list of tax havens.”-Commissioner Moscovici
The only TD to draw attention to the danger to Ireland from the OECD BEPS process in the Dáil debate was Seamus Healy TD. His speech is carried below.
The policy of successive Irish governments of relying to a huge extent on Foreign Direct Investment by multi-national companies over decades for economic development has placed the Irish People in an extremely vulnerable position. The payment of 64 billion to large international investors in Irish Banks has enhanced this vulnerability. Control of the economic affairs of the 26-counties has been ceded to the EU under the Fiscal Treaty. The state is forbidden even to borrow the money required to house our people by the fiscal rules!!! The refusal of the establishment parties to accept 13 billion Euro in back tax awarded by the EU is an indication of the determination of these parties to continue a disastrous economic development policy which is sure to fail.
Already the London government is imposing public expenditure cuts in the six counties and the new right-wing government of Theresa May can be expected to impose further severe cuts possibly using the vote in the “Brexit”referendum as a pretext.
The ability of Ireland to respond to this huge threat has been weakened by the privatisation of companies such as Eircom, Aer lingus and Eireann Foods.
The Nokia mobile phone company was developed in Finland from a nationalised wood company. We need to do likewise but on a much greater scale.
Above all we will have to recover our sovereignty in order to allow us cope with coming developments. If Ireland cannot borrow money to provide homes, what chance is there that the state would be allowed by the EU to borrow for capital investment including the development by the state of modern industry to replace total dependence on multi-nationals? Italy, France and Spain are flouting the Fiscal Treaty and other EU laws when it suits them. We should do likewise, particularly, when the very livelihoods of the Irish people are at stake.
Dáil Debate:Government ( Endapendents+Fine Gael) ,Fianna Fáil and Labour Vote
to Send Back 13 Billion in Unpaid Tax + Interest over 25 years to Apple!!
Deputy Seamus Healy (Tipperary) I will vote against the Government’s proposals on this issue. Mr. Martin Shanahan, the chief executive officer of IDA Ireland, stated in a recent radio interview that the ruling “does not call into question Ireland’s tax regime and does not call into question Ireland’s 12.5% tax rate”. The European Commissioner, Mr. Phil Hogan, subsequently agreed with Mr. Shanahan. Both Mr. Hogan and Mr. Shanahan are correct that the Commission’s ruling does not affect Ireland’s corporation tax rate or sole competency to set that rate. Why then is the Government, by which I mean the Fine Gael Party, the Independents supporting Enda or “Endapendents”, Fianna Fáil and the Labour Party, stressing its militant opposition to any change in the 12.5% corporate tax rate? This fake militancy is in total contrast to the grovelling support shown by these parties for the bailout and fiscal treaty, which fly in the face of the 1916 Proclamation and Irish sovereignty.
Sweetheart deals and allowing corporate entities to avoid paying their fair share of tax have serious consequences for ordinary people. We have, for instance, a serious housing emergency, with more than 100,000 families on housing waiting lists, and a growing homelessness problem, with 2,000 children living in emergency accommodation. Families continue to be evicted from their homes by banks owned by the State. Hundreds of thousands of people are on hospital waiting lists and chaos prevails in hospital emergency departments. Home help services, home care packages and education are being cut and the list goes on. Low and middle income families are also being fleeced by the universal social charge, house tax, inheritance tax, VAT, student fees and the water tax.
Fine Gael, the “Endapendents”, Fianna Fáil and the Labour Party are betraying the Irish people by refusing to accept €13 billion with interest from the €228 billion which Apple has resting in subsidiaries with no tax residence. The same politicians meekly gave €64 billion of citizens’ money to large international investors who gambled on Irish bank bonds. They now want to give back the guts of €19 billion to one of the largest companies in the world.
We heard a great deal in this debate about the Organisation for Economic Co-operation and Development, OECD, and base erosion and profit shifting, BEPS, a concept to which the Minister referred and which is referred to in many, if not all, of the amendments to the motion. BEPS, it seems, will be our saviour. Nothing could be further from the truth, however, because if the current proposals are implemented, Ireland’s position will worsen as corporations will pay each country tax on the profits they make from sales of their products in that country. As sales in Ireland account for only a tiny fraction of worldwide sales, corporation tax revenue will come under serious threat from these proposals. While the 12.5% rate will not change, it will apply to a much smaller share of profits, which will have serious implications for employment here. Many countries, including the United Kingdom, have announced reductions in their corporation tax rates in a race to the bottom. For this reason, the fake militancy of supporters of this motion is a smokescreen to cover up the effects of their current policies and the economic development policies they pursued over decades, including, above all, the ceding of all effective economic sovereignty to the European Union and multinational companies.
Ireland’s ability to respond to this serious threat has been weakened by the privatisation of various companies, including Eircom and Aer Lingus. The Finnish Government, through a nationalised wood company, created thousands of jobs in an indigenous company, Nokia. We must do likewise by creating tens of thousands of jobs in indigenous industries in the high-tech, energy and agricultural sectors, as well as in public works programmes. Above all, we must recover our sovereignty to allow us to cope with future developments. Italy, France and Spain flout the fiscal treaty when it suits them and we must do likewise.
The Organisation for Economic Co-operation and Development (OECD) (French: Organisation de coopération et de développement économiques, OCDE) is an intergovernmental economic organisation with 35 member countries, founded in 1961 to stimulate economic progress and world trade. It is a forum of countries describing themselves as committed to democracy and the market economy, providing a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members.
There are 35 member states- all developed capitalist countries
The top 10 capitalist countries contribute over 67% to the funding of the OECD
Ireland contributes 1.05%
China with the second biggest economy in the world is not a member. Russia, Brazil, India and South Africa are not members.
In March 2014, the OECD halted membership talks with Russia in response to its role in the 2014 Crimean crisis
On 16 May 2007, the OECD Ministerial Council decided to open accession discussions withChile, Estonia, Israel, Russia and Slovenia and to strengthen co-operation with Brazil, China, India, Indonesia and South Africa through a process of enhanced engagement.[21] Chile, Slovenia, Israel and Estonia all became members in 2010.[22][23]
In 2011, President Juan Manuel Santos of Colombia expressed the country’s willingness to join the organisation during a speech at the OECD headquarters.[24]
In 2013, the OECD decided to open membership talks with Colombia and Latvia. It also announced its intention to open talks with Costa Rica and Lithuania in 2015.[25] Latvia became a full member on 1 July 2016.[26]
Other countries that have expressed interest in OECD membership are Argentina, Peru,[27] Malaysia,[28] and Kazakhstan.[29]
In March 2014, the OECD halted membership talks with Russia in response to its role in the 2014 Crimean crisis.[30][31]
The Organisation’s member countries fund the budget for Part I programmes, accounting for about 53% of the consolidated budget. Their contributions are based on both a proportion that is shared equally and a scale proportional to the relative size of their economies.
Member Countries’ percentage shares of Part I budget contributions for 2016
Member Countries % Contribution
UNITED STATES 20.93
JAPAN 10.79
GERMANY 7.52
FRANCE 5.49
UNITED KINGDOM 5.34
ITALY 4.20
CANADA 3.84
AUSTRALIA 3.26
SPAIN 3.02
Korea(South) 2.96
———————————————————————————
Total 67.35
IRELAND 1.05
Developing Countries are not members
Related Documents
Financial Statements of the Organisation for Economic Co-operation and Development as at 31 December 2015
————————————————————–
AS “ENDAPENDENTS” CAVE IN ON APPLE
Minister Zappone Gives Outrageous Interview to RTE
Appeal will give other countries an opportunity to appeal to the EU court for some of the 13 Billion!!
Zappone also caved in to Labour Burton’s cuts in Lone Parent Entitlements
Full Interview http://www.rte.ie/news/player/six-one-news-web/2016/0902/
Minister Zappone said though she agreed with the EU Commission she also supported
the decision to appeal! This was “above all” because this would allow other countries including the US to apply to the EU Court for some of the 13 billion!!
She conveniently forgot that the EU and a grovelling Irish government forced Irish Citizens to pay 64 Billion to citizens of these other countries who had invested in Irish Banks!
————————————————————
Government is now quoting former Competition Commissioner, in support of its rejection of EU Apple ruling. She is being described as an “independent outside expert”
BUT ACCORDING TO THE GUARDIAN–“Neelie Kroes, the Dutch former politician, who headed the commission’s competition directorate from 2004 to 2010, now sits on the public policy board of the taxi-hailing business Uber, a technology group headquartered in California. Uber uses subsidiaries in the Netherlands to shield its overseas income from United States taxes.
——————————————
Bell Tolls For Total Reliance on Multi-Nationals for Irish Economic Development and Job Creation
Restoration of All-Ireland Sovereignty Needed to Protect Irish people in New Crisis
The European Commission Have Sparked a Revolution Against Corporate Tax
Avoidance – The Irish Economy Blog
http://www.irisheconomy.ie/index.php/2016/08/31/the-european-commission-have-
sparked-a-revolution-against-corporate-tax-avoidance/
Irish Examiner Sept 1, 2016
"Multinationals with aggressive tax planning strategies can expect to pay
more tax,” Sarah Jane Mahmud, a Bloomberg Intelligence analyst, wrote in a
recent research note.
“EU reforms will require income to be taxed where generated through, among other things, new restrictions on use of controlled foreign companies,” she said.-Irish Examiner Sept 1, 2016
Government wishes to forego 13 Bn Euro+Interest in an attempt to preserve a policy which will shortly become totally ineffective .
FG, FF and LAB have put our livelihoods in the hands of other countries.
EU RULING ON ILLEGAL IRISH STATE AID TO APPLE SHOWS THAT THE IRISH PEOPLE HAVE BEEN PLACED in MORTAL DANGER by FF, FG and LAB in GOVERNMENT over PAST DECADES THROUGH OVER-RELIANCE on INVESTMENT BY MULTI-NATIONAL COMPANIES
BRITISH RULE IN THE NORTH AND THE EFFECT OF EU TREATIES INCLUDING THE MOST RECENT FISCAL TREATY IN THE SOUTH ENSURE THAT THE IRISH PEOPLE LACK THE FUNDAMENTAL SOVEREIGNTY TO PROTECT AGAINST THESE MORTAL DANGERS
Over decades, FF, FG, Lab have made Irish economy massively over dependent on
location of multi-national companies in the 26-counties. The use of a low
corporate headline tax rate of 12.5% and a real effective rate of 4% was central
to this strategy. In addition indigenous state owned companies were privatised.
This over-dependence on multinationals was already placing the Irish people and
their livelihoods in danger due to new international agreements by the big powers
on company taxation notably, the move to make profits tax on sales in each
country payable in that country. When this regime is fully in place the attraction
of Ireland as a location for multi-nationals will be substantially undermined.
After the Brexit vote, the British Chancellor (Minister for Finance) advocated a
major reduction in British Corporation tax with a view to attracting multi-national
investment to Britain.
Now the EU Commission has clamped down on the Irish decision to allow APPLE to
locate its international headquarters in cyberspace for tax purposes. This enabled APPLE to pay a tiny amount of tax on its sales and other activities outside North and South America. Full EU Determination on Illegal Aid to Apple; http://europa.eu/rapid/press-release_IP-16-2923_en.htm
The great majority of Irish exports are produced by multi-national companies.
Employment in multi-national companies is a very large factor in generating the
demand on which employment in indigenous companies depends.
In summary, the degree of openness of the Irish economy makes it hugely vulnerable
to changes in international tax rules and changes in trade agreements. Massive job losses and increased bankruptcies of small traders are in prospect due to changes in international tax rules for multinational companies combined with the new bigger world recession which is on the way.
THE TERRIBLE TRUTH IS THAT THE IRISH PEOPLE HAVE NO SAY IN THESE MATTERS
BRITISH RULE IN THE NORTH AND THE EFFECT OF EU TREATIES INCLUDING THE MOST RECENT FISCAL TREATY ENSURE THAT THE IRISH PEOPLE LACK THE FUNDAMENTAL SOVEREIGNTY TO PROTECT AGAINST GROWING MORTAL DANGERS
Many years ago the then Finnish government tackled this problem by setting up the state owned Nokia mobile phone company. Why can Ireland not set up modern state owned science and engineering based companies? We have thousands of post-graduate(including post-doctoral researchers). Tens of thousands of graduates are still emigrating. The EU says the 13 billion +interest can be used for capital investment. That would be a start but it would not be enough. The scale of capital investment required is incompatible with the Fiscal Treaty in the context of the huge debt of the Irish state.
The restoration of sovereignty is required not only to protect the livelihoods of our people in the immediate future but, also, to provide them with a secure future in the medium and longer term.
APPLE RULING:Professor Joseph Stiglitz (American Nobel Laureate in Economics) on RTE:MINISTER (Bruton) TALKING BOLDERDASH!
TOMMY COOPER NOONAN STRIKES AGAIN!
“The Minister(Bruton) is talking bolderdash ! There is no reason why Ireland should not take the money and use it to relive severe hardship”-Professor Stiglitz
Minister Brutons justification of appealing the Apple ruling was a misleading but more sophisticated version of the case made by Michael “Tommy Cooper” Noonan who had said: “I have an Apple iPhone which has designed in California written on the back and manufactured in China underneath. Do you think that these activities should be taxed in Ireland?”
What the EU Commission found was that Ireland accepted the APPLE arrangement that it would have a second headquarters in addition to that in Cork. The vast bulk of its profits for all activities outside the UNITED STATES would be declared at the second headquarters. This second headquarters would not be located anywhere for tax purposes. It existed only in cyberspace or “only on Paper” as the EU Commissioner stated in the ruling.
This means that the profit on the manufacturing activity on Minister Noonan’s phone would not be declared in any jurisdiction and therefore no tax would be paid on it anywhere! “Tommy Cooper” Noonan Strikes Again
———————————————————-
Tory Think Tank Urges Movee to Corporate Tax Rate of Zero in UK
In the wake of the Brexit referendum, then Tory Chancellor Osborne announced move to reduce the UK corporate tax rate down to 15%. Now a Tory think tank urges further reduction to zero.
Over decades, FF, FG, Lab have made Irish economy massively over dependent on location of multi-national companies in the 26-counties. The use of a low corporate headline tax rate of 12.5% and a real effective rate of 4% was central to this strategy. In addition indigenous state owned companies were privatised. This over-dependence on multinationals was already placing the Irish people and their livelihoods in danger due to new international agreements by the big powers on company taxation. Notably, the move to make profits tax on sales in each country payable in that country. When this regime is fully in place the attraction of Ireland as a location for multi-nationals will be substantially undermined.
But now developments in post Brexit UK is making the danger more immediate with a move to a zero rate being considered.
To deal with this situation in the context of the disastrous effects of the Fiscal Treaty in the 26-counties and the British cuts in the 6 -counties requires a recovery of real Irish sovereignty north and south.
Threat to FDI as UK urged to slash its corporation tax to zero
Irish Independent PUBLISHED21/07/2016 | 02:30
Colm Kelpie
The UK should consider scrapping corporation tax over time to massively boost the country’s attractiveness to global business, a British think tank has said.
It comes as Ireland’s competitiveness watchdog warned that while our 12.5pc corporate tax rate remains competitive, we’re under pressure internationally.
The London-based Adam Smith Institute said corporation tax in the UK should be abolished as part of a reboot of the country’s tax system in the wake of the Brexit vote.
It said the move could be phased in, with an initial cut to 12.5pc, to bring the country in line with Ireland, then further chops to 6.25pc and, ultimately, zero. Such a move would put Ireland under pressure in terms of foreign direct investment (FDI).
New UK Chancellor Philip Hammond has so far not committed to plans announced by his predecessor, George Osborne, to cut Britain’s corporation tax rate to below 15pc.
The Adam Smith Institute said there is a “false belief” that corporation tax is paid by companies. “It is paid by the employees of companies, by their customers, and by their shareholders,” the institute said, in a note from its president, Madsen Pirie.
“Without corporation tax, businesses would have more money to distribute to shareholders in dividends, to increase the pay of their employees, and to keep prices keen for their customers.
“Although the government would forego the amount it receives in corporation tax, it would receive more income tax from the higher dividends to shareholders and from the increased wages to employees, and more VAT from the extra spending power the lower prices put into the pockets of customers.”
—————————-
Gold Price Soars! Sure Sign of New Recession
Restoration of Irish Sovereignty, North and South, Required to Protect our People!
Goldcore Advertisement-Gold Essential Due Growing Risks to Depositors and Investors-August 26,2016
Extracts
“Interestingly, Noonan himself diversified into gold in March,2015”—–
“Gold has seen a gain of 23% in euro terms so far in 2016 after rising from 975Euro per ounce at the start of the year to just below 1,200 Euro per ounce in recent days. It has risen sharply in all currencies including the US dollar in which it is up 26.4%”
—————————
Biggest bond bubble in history’ is about to burst-Cantillon Irish Times 19/08/2016
Hedge fund manager Paul Singer who manages 28 Billion Dollars in assets says downturn likely to be “surprising, sudden, intense, and large”
He said he believed we were in “the biggest bond bubble in world history”, and advised investors to avoid sub-zero yielding debt.”
“Hold such instruments(bonds) at your own risk; danger of serious injury or death to your capital!” he wrote, according to CNBC.
Some $13,000 billion of bonds worldwide are now trading at negative interest rates, including short-term Irish Government debt. But with central banks pumping billions into the world economy (often by buying bonds), (world economic) growth remaining at record lows and official interest rates on the floor, we are told, yet again, that the fundamentals are supporting all this (as we were during the Irish property boom)
Explanation by Paddy Healy: If an investor loans money to a bank or a government by buying a bond, the investor will get a low or negative interest rate on the money invested. By contrast if an investor buys a bond from the existing holder of that bond on the bond market, the price the investor will pay to the existing bondholder for the bond is at an all time high or nearly so. This appears to defy all reason.
The reason is that investment in almost anything else including the manufacture of goods is perceived to be much more risky and/or is likely to give an even worse return. This can only continue while there is a hope that world economic growth will resume at healthy levels.
Paul Singer (not the Irish swindler of the 1960’s !!) is saying that the price of bonds (like Irish house prices during the boom) will crash dramatically as the requisite world economic growth will not happen. His investing clients should get out of bonds now and buy no more bonds, he says. His words are:“Hold such instruments at your own risk; danger of serious injury or death to your capital!” he wrote, according to CNBC.
As bond buying is an international phenomenon, the inevitable crash in bond prices will give rise to a massive international recession.
Capitalist media peddle the narrative that all rich people suffer big losses in a crash. This is not so. Let us say that A buys a site for building from B during the boom for 20 million euro . After the crash the site is worth only a million euro and A becomes bankrupt. A has lost 9 million but B has the 10 million in cash in the bank-a net gain of 9 million euro. With prices now at rock bottom, B can buy up a multiple of the assets sold to A. When the recession ends, B has become fabulously wealthy. Paul Singer is applying this line of thinking to a specific asset-bonds
———————————————–
IS IRELAND’S ABSENCE FROM INTERNATIONAL ANTI-AUSTERITY CONFERENC DUE TO IRISH GOVERNMENT SUPPORT FOR GERMAN IMPOSED AUSTERITY?
“Now the leaders of France, Italy, Spain, Portugal, Cyprus and Malta are planning to meet in Athens next month to forge a new anti-austerity alliance with the aim of wrestling back control of the ECB, which sets Eurozone fiscal policy, from Berlin.”
‘Brussels CAN’T drag us into recession’- Italy in fightback against German-led EU austerity-Daily Express
ITALY is planning to launch a fightback against the EU policy of austerity being led by Angela Merkel’s Germany.
Full Articlehttp://www.express.co.uk/news/world/700298/European-Union-Italy-prime-minister-Matteo-Renzi-Brussels-austerity-Merkel-ECB
By Nick Gutteridge Daily Express August 16,2016
Matteo Renzi has warned Brussels over continuing austerity
The country’s president Matteo Renzi insisted he would not let Brussels “drag us into recession” as he pleaded for European leaders to loosen the purse strings.
Mr Renzi, who is facing a crunch referendum which will decide his political future, issued a dire warning that Italy is facing its “toughest moment” in 50 years due to the euro crisis.
And he had the German dominated European Central Bank (ECB) in his sights as he called for “more flexibility” to pump cash into his country’s ailing economy to spark it into new life.
Related articles
Rest of Europe gangs up on Germany over crippling EU austerity
Brexit will ‘force EU rethink’ as France gangs up on Germany in ant…
His comments came after it emerged a coalition of Mediterranean countries is forming a new alliance with the aim of forcing Mrs Merkel into a U-turn on interest rates and spending.
Germany – the EU’s biggest economy – has kept a close eye on eurozone finances and was behind restrictive Brussels rules on spending and budget deficits which is squeezing the life out of southern European economies.
As a result Mr Renzi is fighting off a growing eurosceptic movement in Italy, whose economy has floundered for decades and is the same size now as was when the country joined the euro 15 years ago.
GETTY
The Italian PM urged Angela Merkel to loosen the purse strings
Italy is in the grip of a growing eurosceptic movement
The Italian prime minister is struggling to constrain a surge in anti-Brussels feeling which could cost him his premiership when Italians vote in a referendum on domestic reforms in October.
Mr Renzi has said he will resign if he loses the vote amid fears the weary Italian public will use it to give the establishment in Rome and Brussels a kicking.
If he goes there will likely be a fresh general election with the right-wing, eurosceptic Five Star movement set to make huge gains in such an eventuality, according to the latest polls.
Brussels can’t drag us into an economic recession
Matteo Renzi
In a desperate plea to Mrs Merkel and EU chief Jean-Claude Juncker to ease their iron grip of austerity, Mr Renzi said today: “Brussels can’t drag us into an economic recession.
“We want more flexibility to change and expand our budget law.”
His comments were echoed by Italy’s chancellor, Carlo Calenda, who added: “We will ask Europe for more flexibility. This is the toughest moment we have faced in the last 50 years.”
Italy’s economy has been in the doldrums for decades like many other Mediterranean countries, with job creation and living standards being suppressed by a euro currency which has fuelled a German exports boom.
The latest GDP figures from Rome show the country’s economy did not expand at all in the second quarter of this year, after growth of just 0.3 per cent between January and March.
Brexit aftershocks: Who’s next to leave the EU?
Wed, June 29, 2016
After Britain voted to leave the EU, we look at which European countries want to hold their own EU referendum.
CLOSE
Italian manufacturing has slumped due to decreasing domestic demand whilst the country’s banks, which are teetering on collapse, have been badly hit by the financial contagion following the Brexit vote.
Meanwhile, Italy’s public finances are in a dire state following years of Berlin-imposed austerity, with government debt running at an astonishing 2.48 billion euros (£2.15bn), which is 135 per cent of GDP.
Mr Renzi’s arguments against Brussels austerity are finding an increasingly sympathetic audience across the continent, where falling living standards, spiralling unemployment and growing poverty are fuelling anti-EU sentiment.
Now the leaders of France, Italy, Spain, Portugal, Cyprus and Malta are planning to meet in Athens next month to forge a new anti-austerity alliance with the aim of wrestling back control of the ECB, which sets Eurozone fiscal policy, from Berlin.
It is being headed up by Greek premier Alexis Tsipras, who has frequently clashed with both Mrs Merkel and Brussels over the crippling austerity which has brought his country to its knees.
ALSO SPUTNIK NEWS
Italy Set for EU Showdown Amid Pledge to Scrap Austerity
http://sputniknews.com/europe/20160815/1044291854/italy-eu-scrap-austerity.html
WILL THOSE ON LOW AND MIDDLE
INCOMES PAY FOR ANOTHER CAPITALIST
CRISIS?
SEE Michael Roberts Blog(Marxist Economist)- Predictions for 2016
https://thenextrecession.wordpress.com/2016/01/05/predictions-for-2016/
Irish People Have Been Placed in Mortal Danger by FF, FG, Lab in Government over past decades
Tory Think Tank Urges Movee to Corporate Tax Rate of Zero in UK
In the wake of the Brexit referendum, then Tory Chancellor Osborne announced move to reduce the UK corporate tax rate down to 15%. Now a Tory think tank urges further reduction to zero.
Over decades, FF, FG, Lab have made Irish economy massively over dependent on location of multi-national companies in the 26-counties. The use of a low corporate headline tax rate of 12.5% and a real effective rate of 4% was central to this strategy. In addition indigenous state owned companies were privatised. This over-dependence on multinationals was already placing the Irish people and their livelihoods in danger due to new international agreements by the big powers on company taxation. Notably, the move to make profits tax on sales in each country payable in that country. When this regime is fully in place the attraction of Ireland as a location for multi-nationals will be substantially undermined.
But now developments in post Brexit UK is making the danger more immediate with a move to a zero rate being considered.
To deal with this situation in the context of the disastrous effects of the Fiscal Treaty in the 26-counties and the British cuts in the 6 -counties requires a recovery of real Irish sovereignty north and south.
Threat to FDI as UK urged to slash its corporation tax to zero
Irish Independent PUBLISHED21/07/2016 | 02:30
Colm Kelpie
The UK should consider scrapping corporation tax over time to massively boost the country’s attractiveness to global business, a British think tank has said.
It comes as Ireland’s competitiveness watchdog warned that while our 12.5pc corporate tax rate remains competitive, we’re under pressure internationally.
The London-based Adam Smith Institute said corporation tax in the UK should be abolished as part of a reboot of the country’s tax system in the wake of the Brexit vote.
It said the move could be phased in, with an initial cut to 12.5pc, to bring the country in line with Ireland, then further chops to 6.25pc and, ultimately, zero. Such a move would put Ireland under pressure in terms of foreign direct investment (FDI).
New UK Chancellor Philip Hammond has so far not committed to plans announced by his predecessor, George Osborne, to cut Britain’s corporation tax rate to below 15pc.
The Adam Smith Institute said there is a “false belief” that corporation tax is paid by companies. “It is paid by the employees of companies, by their customers, and by their shareholders,” the institute said, in a note from its president, Madsen Pirie.
“Without corporation tax, businesses would have more money to distribute to shareholders in dividends, to increase the pay of their employees, and to keep prices keen for their customers.
“Although the government would forego the amount it receives in corporation tax, it would receive more income tax from the higher dividends to shareholders and from the increased wages to employees, and more VAT from the extra spending power the lower prices put into the pockets of customers.”
AFTER BREXIT REFERENDUM
Ireland North or South has no sovereignty to deal with imperialist-imposed austerity and future deadly dangers
Inter-Imperialist Conflict Developing-It gave rise to 2 world wars but then as now nobody noticed (or pretended they didn’t notice) until it was upon us!
Yet Sinn Féin, Tony Coughlan, AAA-PBP took sides on whether Imperialist UK should leave imperialist EU!!!
It is Time to Concentrate on the issue of Irish Sovereignty -Paddy Healy
The Militarisation of Europe is a far greater threat than Brexit -Prof Ray Kinsella Irish Independent 11/07/2016
See Post on this Blog Defend Irish Neutrality, Reclaim our Sovereignty
Ireland Must Resist New Pressures To Give Up Military Neutrality
Recovery of All-Ireland Sovereignty of Irish People More Vital than Ever!
———
EU COULD BREAK UP-“EU in EXISTENTIAL CRISIS”-
Prof David Farrel-The Week In Politics
—–
New Element in World Capitalist Crisis-TTIP PUT ON HOLD
FG(Brian Hayes wants TTIP(Proposed New US-EU Trade Agreement) hurried up
https://thenextrecession.wordpress.com/…/brexit-ttip-and-t…/
But Marxist Economist Michael Roberts says Brexit vote will put it on hold
—–
Risk of new European banking crisis as ‘kick and hope’ strategy runs out of road
Prof Colm McCarthy Sunday Independent 10/07/2016
Brexit has hit Europe’s recovery and the biggest casualty will be banking
The combination of weaker (European) recovery prospects and political instability flowing from Brexit has made the kick-and-hope strategy for the banks look increasingly inadequate. The result could be a re-run of the 2012 eurozone crisis.
The acute phase of the eurozone sovereign debt crisis in 2012 was triggered in Italy, not in Greece or one of the other small peripheral economies. The European Central Bank eventually took action – an Italian collapse would have threatened the survival of the common currency – and crisis was deferred. But the eurozone banking system has not been fixed, and the extend-and-pretend tactic is facing another challenge. UK Prime Minister David Cameron’s referendum gamble has not merely come unstuck, it has gone wrong at the wrong time.
Europe’s fragile recovery is threatened by the Brexit decision. Sterling has fallen sharply and surveys of business confidence have turned suddenly negative in Britain and elsewhere in Europe. There is a risk that corporate investment, weak before the vote, will dip further and consumer confidence has also taken a knock. There is greatly increased volatility in asset markets, and forecasts of economic performance across Europe have been trimmed back. The uncertainty stemming from the Brexit decision will persist until the new relationship between Britain and the EU is clarified, which could take several years.
The biggest casualty in Britain and the eurozone has been confidence in the banking sector. Bank share prices have weakened as investors fret about further loan losses and inadequate loan-loss provisions. Shares in Deutsche Bank, the eurozone’s largest, trade at 30pc of book value. The most acute problem is in Italy, where the banking system has yet to deal decisively with non-performing loans. Since the extent of the banking crisis began to emerge in 2008, eurozone policy has insisted on a ‘too little, too late’ approach to fixing bank solvency. Stress tests on bank balance sheets have been too lenient and too little fresh capital has been raised.
Banks will lose the confidence of depositors and other lenders unless their assets are believed to exceed their liabilities by a comfortable margin. The stock market should value bank shares roughly in line with their net worth, the excess of assets over liabilities shown in the books. If share prices fall well below the book value this means that the market does not believe that the assets (mainly loans) are worth as much as the bank maintains. They are factoring in concealed loan losses which the banks, and their supervisors, have failed to acknowledge.
Once declining share prices raise the red flag, the next phase is deposit flight. Banks own mainly illiquid assets (loans) but have demandable deposits and can quickly find themselves unable to meet outflows.
Central banks can step in and provide temporary liquidity but this is a stop-gap. Ultimately, loan losses have to be confronted and dealt with through re-capitalising the stronger banks and closing the lost causes. One way to re-capitalise is to write down bondholders in failing banks but this is politically toxic in Italy, where the banks have been permitted to sell bond-like instruments to retail investors, many of whom think they are holding guaranteed deposits.
The textbook recommendation on banking crises is to recognise losses and re-capitalise quickly. This advice has been ignored consistently in the eurozone’s dangerous tactic of extend-and-pretend and the endgame is looming in Italy. Over the year to date, some Italian bank shares have halved and the weakest banks are priced in the market at under one-fifth their book value. This should mean curtains, unless fresh equity capital, adequate to absorb the concealed losses, is mobilised quickly.
The Italian state is heavily indebted and is still running a sizeable budget deficit. It can, however, borrow at low interest thanks to the ECB’s support for eurozone bond markets. The Italian sovereign could borrow more and subscribe for extra shares to recapitalise the weakest banks, supplementing the inadequate rescue fund cobbled together pre-Brexit. But there are problems with eurozone rules on bank recovery and resolution, and the new rules, agreed with much fanfare as the key step in creating a proper banking union, appear unsuited to dealing with the first serious challenge to follow their adoption. The EU’s Bank Recovery and Resolution Directive has equipped policymakers with the tools needed to handle various contingencies, except the one which has actually arisen.
If the eurozone functioned as a proper monetary union the central authorities would take the lead in dealing with the Italian crisis. The ECB is spending €80bn each month supporting the eurozone market in sovereign and corporate bonds, the so-called quantitative easing, or QE programme. It has been estimated that just one month’s spending on QE would be more than enough to fix the Italian banks if the money was devoted to direct re-capitalisation, with the ECB acquiring share stakes in the weakest lenders. This is not allowed under existing rules. Setting up a Nama-style operation to buy the dud loans at a discount is not enough either. It would crystallise the concealed losses, as it did in Ireland, and make transparent the capital shortfall. Expect lengthy late-night sessions some Friday in Brussels when another ingenious fudge will be sought.
The list of indebted countries in the eurozone facing early elections or struggling along with minority governments is lengthening.
The Irish and Portuguese governments lack a durable parliamentary majority, there has been no government in Spain for seven months despite a second election, while the Italian government trails a populist opposition party in the polls and could lose a critical constitutional referendum in October.
The party now leading the Italian opinion polls, the Five Star movement, favours departure from the eurozone.
National elections are also due in France, Germany and the Netherlands next year, with the National Front, keen to exit the euro and the EU itself, gaining ground in France.
The Brexit shock will feed into these important elections, with incumbent politicians reluctant to be seen making concessions to the deserting British in the exit negotiations. One possibility is that no progress will be made until these elections are out of the way, pushing the exit timetable back, prolonging the period of uncertainty and exacerbating the risk of a prolonged economic slowdown.
More generally, the Brexit vote has encouraged Eurosceptic parties around Europe, including parties opposed to the common currency, to EU membership, or both.
A sharp recession in Britain would cool their ardour, a high price to pay from an Irish perspective.
A period of steady economic recovery, especially in the more indebted eurozone countries, was always the vital component in a policy based on hoping the banks would repair themselves without surgery.
The combination of weaker recovery prospects and political instability flowing from Brexit has made the kick-and-hope strategy for the banks look increasingly inadequate. The result could be a re-run of the 2012 eurozone crisis.
There is a limit to what the Irish Government can usefully be doing until Britain clarifies its negotiating position, and the focus for now should be on securing the improvement in the condition of the banking system and in the public finances.
Irish bank shares have weakened substantially, the concerns about non-performing loans have not gone away and plans to offload the Government’s shares into the market are off the agenda. The temptation to loosen Irish budget policy will have to be resisted – it just got riskier.
Sunday Independent
——————–
As Ireland must Keep Deficit below 3% of GDP
Britain to Disregard Fiscal Treaty Norm on Budget Deficit
–(Britain is not a party to the Fiscal Treaty as it is not in Eurozone)
Business Minister Mr Javid said he did not think the current deficit it could be brought down to zero by 2020.
“Does it mean 3% becomes 4% or 5%? I don’t think anyone can say at this point.”
“The (British) government should introduce a raft of corporate and personal tax cuts”-he said
British minister calls for tax cuts to ease Brexit blow RTEWednesday 06 July 2016 08.01
Sajid Javid said he did not think the deficit could be brought down to zero by 2020
British business minister Sajid Javid has said the government should introduce a raft of corporate and personal tax cuts to soften the blow from an expected lowdown in the wake of Britain’s vote to leave the European Union.
Mr Javid told the Financial Times newspaper the government needed to switch its focus from reducing the deficit to stimulating economic growth.
Finance minister George Osborne last week dropped his policy of turning Britain’s budget deficit into a surplus by 2020 and Mr Javid said this morning that it was now hard to predict what would happen to the deficit.
Mr Javid said he did not think it could be brought down to zero by 2020.
“Does it mean 3% becomes 4% or 5%? I don’t think anyone can say at this point.”
UK to set new corporation tax below 15%
Rate cut part of Osborne’s five-point plan to woo investment to post-Brexit Britain
Could a New Inter-IMPERIALIST WAR Emerge?
Irish Employers Demand Massive Move to The Right
IBEC says: “We need to slash capital gains tax, cut the marginal tax rate to attract mobile talent and bring the tax treatment of share options into line with the UK and other competitor economies. Now is not the time to sit on the sidelines and see what happens.”
INTER-IMPERIALIST CONFLICT?
Concern about the effect on Ireland North and South of the Further British reduction in UK corporation tax is well grounded.The lack of any significant Irish sovereignty north or south puts the Irish people in great danger.For example TORY BREXIT LEADER GROVE SEES GOOD FRIDAY AGREEMENT AS OBSTACLE TO SUPER-COMPETITIVE ULTRA-NEO LIBERAL UK (including Northern Ireland)
“What Gove was really worried about was that the Belfast Areement was, as he put it, “a Trojan horse” for democratic reform across the UK. It introduces proportional representation. Horrifically, “it enshrines a vision of human rights which privileges contending minorities at the expense of the democratic majority”. Even worse, “it offers social and economic rights””. Fintan O’Toole, Irish Times 05/07/2016
But there is a wider and even more threatening aspect of the British decision affecting the whole world including Ireland.
There has been an unstated non agression pact between major capitalist countries on the matter of corporation profits tax in recent decades. There has,of course, been a degree of tax competition. However the proposal by a major capitalist country such as Britain to move below 15% is a huge step which cannot be ignored by Germany, France, US,Japan.
Gewerkschaftler(commentator on Cedar Lounge Blog) is right when he says it is a further step towards an extreme neo-liberal/extreme capitalist Britain. But it is also a step towards an even more neo-liberal world.
The response of the Irish employers (through IBEC below) sets out the new “Super Competitive” model-Negligible tax on business, lower taxes on large incomes, lower pay,lower welfare, higher indirect taxes on working and unemployed people etc
Late capitalism is becoming even more damaging to human well being than heretofore
There is an aspect of the new moves by the British ruling elite- Brexit followed by lower corporation tax- which is even more worrying. It is the inherent conflict involved between large capitalist powers. The battle for markets led to the Battle of the Somme 100 years ago.
Could the new inter-imperialist war be about the location and taxation of global investment?
World capitalism needs to be eradicated and soon!
Financial Times Article-UK to reduce Corporation Tax below 15%
George Parker Financial Times 03/07/2016
Chancellor George Osborne said he wanted a leading role in shaping Britain’s new economic destiny, laying out plans to build a “super competitive economy” with low business taxes and a global focus.
Britain’s chancellor George Osborne is planning to cut the UK’s corporation tax to less than 15 per cent in an effort to woo business deterred from investing in a post-Brexit Britain as part of a new five-point plan to galvanise the economy.
While the chancellor did not backtrack on his warning that leaving the EU could push the country into recession, he said: “We must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt.”
Mr Osborne said he wanted a leading role in shaping Britain’s new economic destiny, laying out plans to build a “super competitive economy” with low business taxes and a global focus. Mr Osborne wants to set the lowest corporation tax rate of any major economy, announcing a target of less than 15 per cent, down from 20 per cent now.
He said Britain should “get on with it” to prove to investors that the country was still “open for business”.
Irish corporation tax
Such a sharp cut in business taxes would take Britain close to Ireland’s 12.5 per cent corporation tax rate and would anger EU finance ministers who fear a race to the bottom.
Employers’ lobby group Ibec said the proposal reinforces the needs to significantly reform the Irish offering in the upcoming budget to make Irelandmore attractive for foreign investment. Its chief executive Danny McCoy said: “Ireland has had very limited control over major recent political and economic developments. However, we must act decisively in areas where we do have control. The next budget should include bold moves to support investment and job creation.
“We need to slash capital gains tax, cut the marginal tax rate to attract mobile talent and bring the tax treatment of share options into line with the UK and other competitor economies. Now is not the time to sit on the sidelines and see what happens.”
The head of tax at the Organisation for Economic Co-operation and Development warned, in an internal memo cited by Reuters, that the fallout from Brexit “may push the UK to be even more aggressive in its tax offer” but that further steps in that direction “would really turn the UK into a tax haven type of economy”.
Beside the tax cut, Britain’s chancellor said his five-point plan included focusing on a new push for investment from China; ensuring support for bank lending; redoubling efforts to invest in the Northern powerhouse; and maintaining the UK’s fiscal credibility.
Challenging time
Mr Osborne accepted that Britain faced a “very challenging time” and urged the Bank of England to use its powers to avoid “a contraction of credit in the economy”, reminiscent of the squeeze during the height of the financial crisis in 2008.
The Bank of England will publish the results of its financial policy committee meeting tomorrow. It has many options available to maintain the flow of credit to companies and households even if many are reluctant to borrow in current circumstances.
The chancellor said Britain would aggressively seek new bilateral trade deals and that he would lead an extended visit to China this year, in an attempt to keep inward investment flowing.
On the public finances Mr Osborne promised to “maintain the consolidation that we put in place last year” and said a review of the structural damage caused by Brexit would be conducted in the autumn.
– Copyright The Financial Times Limited 2016
May 9,2016
Scary movie – Brussels style
By Sean Whelan, RTE, on Tuesday 03 May 2016 15.02
Full Article http://www.rte.ie/news/business/2016/0503/785860-sean-whelan-blog/
Holy Moly – the latest economic forecast from the European Commission is one of the scariest I have seen from any major forecaster for some time. You want me to be more precise – OK, what about 2009? That’s the last time the global economy was growing as slowly as it is now.
As for the risk of something bad blowing up, like it did back then, well have a look at this line from Marco Buti, the top Eurocrat in charge of the European Commission’s Economic directorate General: “Policy makers need to stand ready to react swiftly and decisively to the potential materialisation of multiple, large and inter-related downside risks”
So fasten your seatbelts, this could be a rough ride. Don’t be fooled by the China-busting 7.8% GDP growth Ireland had last year, or the Europe-leading 4.8% forecast for this year – the potential for things to turn really bad, really fast hasn’t been this high since Lehman Brothers was open for business.
April 14, 2016
Bank of America first-quarter profits fall 18% on weak trading
Russian Economy Shrank by 3.75% in 2015
————————————————————————–
Associated Press Thursday 14
Bank of America also reports trade revenue is down significantly from a year earlier, as it made less money from investment banking fees
Bank of America’s first-quarter profit fell more than 18% from a year earlier, hurt by weak performance in its trading unit. Associated Press Thursday 14 April 201614.28 BSTLast modified on Thursday 14 April 201615.29 BST
———————————————————————–
Irish banks , Bank of Ireland and Permanent TSB( owned by the state), recorded double-digit(over 10%) declines in their share prices.
Where are all the election promises now? Where are the ridiculous government promises to protect Ireland from world recession?
In Dublin the Iseq share index, which had already lost more than €10bn this year, closed down 2.65pc.
—————————————————————
European banks reeling amid global slowdown concerns-Irish Times Feb 12
Volatility hits Irish banks, with questions raised on AIB flotation
Irish Times Ciarán Hancock
In the red: European banks head toward their lowest prices since August 2012. Photograph: Danish Siddiqui/Reuters
It was almost like 2008 all over again for the global financial sector this week as shares were routed.
On Thursday, France’s Société Générale became the latest group to report earnings that missed estimates, dragging the sector down. Credit Suisse Group joined Germany’s Deutsche Bank and Italian and Greek counterparts trading at or near record lows. Nor have Irish banks been immune with Bank of Ireland and Permanent TSB recording double-digit declines in their share prices.
European banks are heading toward their lowest prices since early August 2012 – the point when they started rallying after European Central Bankpresident Mario Draghi pledged to save the euro by whatever means necessary.
Irish Independent Feb 12
In Dublin the Iseq share index, which had already lost more than €10bn this year, closed down 2.65pc.
Gold, traditionally seen as a safe haven in bad markets, surged more than 4pc yesterday to its highest in a year.
“Banks are seen as the front-line, but the sell-off is driven by the sense that global growth is not happening, and the US could even go into a recession,” said Eugene Kiernan of Appian Asset Management.
———————————————————–
Large German Bank Takes Hit Feb 10
Deutsche Bank’s shares slump as fears build over outlook-Irish Times Feb 10
4 Billion Wiped Off Irish Shares—Feb 8
WHERE ARE THE ELECTION PROMISES NOW????
The Iseq Overall Index fell by 5.5 per cent in Dublin, its biggest one-day fall since August 24th, 2010.
Bank of Ireland had €906 million wiped off its market value as its shares fell by just under 10 per cent.
Permanent TSB, which is 75 per cent owned by the State, experienced a 9.4 per cent drop in its share price, shedding €155 million in value.–Irish TIMES Feb 9
Japan Shares Tumble by 5% Feb 9
Japan and Australia track European market rout
Tuesday 03.03 GMT Japanese and Australian financial markets were in a spin on Tuesday, with bank shares tumbling after a global sell-off,…Financial Times
———————————————————–
Irish Stock Market Drops by 10%
Shane Ross Sunday Independent Jan 24
Scepticism about Ireland’s ability to go it alone is not confined to overseas observers. Even the Irish stock market does not believe Enda’s promise to “insulate” us from the global dangers. Last Wednesday saw Irish shares fall 10pc from their December highs. The falls were in response to the slide in overseas markets. Oil and China affect the Irish economy as much as they make Wall Street wobble. Traders in Ireland’s leading shares were heading for the exits. They had no room for sentiment, patriotism or electoral bull from Fine Gael, Labour, Fianna Fail or the smaller parties. They were giving the thumbs down to an Irish economic fairytale that would make an ostrich blush. They never bought the narrative that Ireland could sustain a growth rate far superior to the US, the UK and all European countries. They knew the score. They even put the knife deep into the Irish Government’s ribs. They sold shares in Irish banks, the flagships of our recovery. They dumped AIB stock, the Government’s big white hope for a bonanza later this year.
TAOISEACH ACTS THE LEPERACHAUN IN DAVOS!
Taoiseach Kenny has said in Davos That the government “had put in place a strategy to insulate Ireland from world financial volatility TO THE EXTENT THAT THAT IS POSSIBLE (Note the “get out” clause). This is a bad joke.
The Irish economy, one of the more open in the world, is like a cork on the water.
The inequitable recovery, such as it is, is due to a fortuitous congruence of external factors-weak euro, greater implantation in better performing UK and US markets than other EU countries, low oil prices etc. For the same reason, any strategy to insulate Ireland from a world economic downturn, would be like a childs sandcastle in the face of a TSUNAMI. A few years ago he told the world super-rich at Davos that the Irish all went mad borrowing. Now he is the Performing Leperachaun fantasising about beating back the hurricane !
GLOBAL STOCKS SLIDE INTO BEAR MARKET (SLUMP) TERRITORY
IRISH STOCK EXCHANGE INDEX (ISEQ) FALLS FOR FIFTH DAY IN A ROW
THE GLOBAL EQUITY ROUT ACCELERATED TODAY WEDNESDAY JAN 20, SENDING FINANCIAL TIMES STOCK EXCHANGE (FTSE) All-WORLD INDEX INTO BEAR MARKET(Slump) TERRITORY AS OIL PRICES SLIDE TO NEW LOWS….
Royal Bank of Scotland warns of ‘cataclysmic’ year with slumps in shares and oil and advises clients to shift to bonds
Investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel, economists at the RBS have warned.
———————————————————————–
Jan 11 CHINA MARKETS Slide Lower in Morning Trading-Equities fell across the board- Financial Times
Jan 7 1 pm Irish time -Billions wiped off Stock Markets in DUBLIN, LONDON, PARIS, FRANKFORT as NEW GLOBAL CAPITALIST CRISIS DEVELOPS EVEN FURTHER!—RTE NEWS
Gold in high demand as investors seek safe haven!
George Soros, the legendary investor, is reported today forecasting a markets crisis along the lines of 2008.
It is important to realise that the developments outlined below are not merely due to some local difficulties, in China for example, but are part of a world-wide phenomenon . Western spokespeople including RTE Economic Reporters attempt to portray what is happening as a local dysfunction of the Chinese Economy. The reality is that the world recession which began in 2007-2008 would have been far worse if China had not continued to boom until recent times. There are fundamental systemic problems in the global economy as explained by Michael Roberts at the link above.
Jan 7 FINANCIAL TIMES
Markets Hit by China’s New 7% Plunge
Thursday 08.00 GMT. Global equities are continuing their miserable start to 2016, sliding to three-month lows
Over €700m wiped off Irish exchange equities and Euro Stoxx 600 has worst start ever-Irish TIMES-Jan 5
CHINA STOCK MARKETS CLOSED AS SHARES Fall 7.6%
Global Stock Markets Affected
German Stocks Fall 4.5% 04/01/2016
SHANGHAI, China 04/01/2016— Trading on the Shanghai and Shenzhen stock markets was halted for the day on Monday after shares fell seven percent.
The drop in the CSI300 index, which covers both bourses, triggered an automatic early closure for the first time under a new system to curb volatility, after an earlier 15-minute trading halt failed to stem the declines.
Trading was initially suspended after shares fell more than five percent under the new system.
Financial Times -China Stock Plunge triggers “Circuit Breaker” trading Halt -Shenzen market suffering its worst day in nine years
——————————————————-
Global Shares and Oil hit by China Data-FT December 28
Equities across the globe were undermined on Monday by losses in mainland China- Financial Times Dec 28
Paddy Healy: GLOBAL is the key word in the Financial Times Report. The fact that shares were hit ACROSS THE GLOBE shows that developments are taking place which affect the CAPITALIST SYSTEM AS A WHOLE. This adds weight to the analysis below, carried in the Guardian on Oct 12
The world economic order is collapsing and this time there seems no way out–THe Guardian OCT 12
“ Global banks now make profits to an extraordinary degree from doing business with each other.”
Will Hutton
The refugee crisis is paralleled by the savage fallout from a global financial system running out of control
Refugees arriving on Lesbos, Greece, last month: the billions of dollars fleeing emerging economies are not accompanied by harrowing images.
Sunday 11 October 2015 00.05 BST Last modified on Sunday 11 October 2015 00.09 BST
Europe has seen nothing like this for 70 years – the visible expression of a world where order is collapsing. The millions of refugees fleeing from ceaseless Middle Eastern war and barbarism are voting with their feet, despairing of their futures. The catalyst for their despair – the shredding of state structures and grip of Islamic fundamentalism on young Muslim minds – shows no sign of disappearing.
Yet there is a parallel collapse in the economic order that is less conspicuous: the hundreds of billions of dollars fleeing emerging economies, from Brazil to China, don’t come with images of women and children on capsizing boats. Nor do banks that have lent trillions that will never be repaid post gruesome videos. However, this collapse threatens our liberal universe as much as certain responses to the refugees. Capital flight and bank fragility are profound dysfunctions in the way the global economy is now organised that will surface as real-world economic dislocation.
The IMF is profoundly concerned, warning at last week’s annual meeting in Peru of $3tn (£1.95tn) of excess credit globally and weakening global economic growth. But while it knows there needs to be an international co-ordinated response, no progress is likely. The grip of libertarian, anti-state philosophies on the dominant Anglo-Saxon political right in the US and UK makes such intervention as probable as a Middle East settlement. Order is crumbling all around and the forces that might save it are politically weak and intellectually ineffective.
Analysis IMF’s emerging markets warning is timely
Larry Elliott Economics editor
An interest rate increase from the US Federal Reserve is a likely catalyst for the crisis in emerging markets the International Monetary Fund clearly fears
Read more
The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to an extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level. That banks create credit is nothing new; the system depends on the truth that not all depositors will want their money back simultaneously. So there is a tendency for some of the cash banks lend in one month to be redeposited by borrowers the following month: a part of this cash can be re-lent, again, in a third month – on top of existing lending capacity. Each lending cycle creates more credit, which is why lending has always been carefully regulated by national central banks to ensure loans will, in general, be repaid and sufficient capital reserves are held. .
The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.
The false boom that follows seems to justify the lending. Property prices rise. Companies and households grow overconfident about their prospects and borrow freely. Economies surge well above their trend growth rates and all seems well until something – a collapse in property or commodity prices – unravels the whole process. The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.
Andy Haldane, Bank of England chief economist, describes the unfolding pattern of events as a three-part crisis. Act one was in 2007-08 in Britain and the US. Buoyed for the previous decade by absurdly high inflows of globally generated credit that created false booms, they suddenly found their overconfident banks had wildly lent too much. Collateral behind new fangled derivatives was worthless. Money flooded out, leaving Britain’s banking system bust, to be bailed out by more than £1tn of liquidity and special injections of public capital.
Act two was in Europe in 2011-12, when it became obvious that the lending had been made on the incorrect assumption that all eurozone countries were equal. Again, money flooded out and Europe only just held the line with extraordinary printing of money by the European Central Bank and tough belt-tightening measures in overborrowed countries such as Portugal, Greece and Ireland. It might have been unfair, but it worked.
Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.
China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.
Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.
The world needs inventive responses. It needs a a bigger, reinvigorated IMF whose constitution should reflect the global balance of economic power and that can rescue the EMEs. It needs proper surveillance of global finance. It needs western governments to launch massive economic stimuli, centred on infrastructure spending. It needs new smart monetary policies that allow negative interest rates.
None of that is in prospect, vetoed by an ideological right and not properly championed by the left. If there is no will to deal, collectively, with the refugee crisis, there is even less to reorder the global economy. We may muddle through, but don’t bet on it.
Oct 4
(Reduced)Growth of just 3pc in China could knock US and Eurozone growth rates, leaving them as low as 1.7pc and 0.8pc respectively in 2016
Chinese ‘hard landing’ fears see biggest capital flight since 1988
Investors are on track to pull €485bn out of the emerging markets this year in flight for safety.
Peter Spence Sunday Independent 04/10/2015 | 02:30
Investors are on track to pull €485bn out of emerging markets this year, as fears that China is headed for a ‘hard landing’ have prompted the greatest flight for safety since 1988.
The amount being pulled out of emerging markets is the equivalent of almost three times the value of Ireland’s GDP, or almost the size of oil rich Norway’s entire economy.
The Institute of International Finance (IIF) said that the net outflows would most likely continue next year, as the prospect of US interest rate rises threaten to dampen the emerging market outlook further.
Charles Collyns, managing director and chief economist at the IIF, said that “emerging markets have seen sharp losses in recent months”. The IIF’s forecasts came as economists warned that emerging markets could face a brutal slowdown over the next 12 months.
The carnage in investments marks a huge reversal from 2014, when investors poured a net $32bn (€28.5bn) into emerging markets
“Unlike the 2008 crisis, the reasons for the outflows are largely internal rather than external – related to rising concerns about economic prospects and policies in China, coupled with broader uncertainties about EM growth prospects,” said Mr Collyns.
Credit ratings agency Fitch said that it expected China to grow by 6.3pc next year, but cautioned that if the current turmoil continues, a collapse in public and private investment could cause growth to drop to less than half that pace.
“A Chinese contraction would intensify deflation risks . . . especially in the eurozone, where demand has remained persistently weak and inflation low,” the ratings agency said in a report.
Growth of just 3pc in China could knock US and eurozone growth rates, leaving them as low as 1.7pc and 0.8pc respectively in 2016, Fitch predicted.
It is feared that those who rely on China for trade may be caught off guard. Asian economies, including Hong Kong, South Korea and Japan, as well as commodities producers such as Brazil and Russia, would be worst hit by a hard landing.
Hung Tran, the IIF’s executive managing director, said that “one major, underlying reason to expect sustained pressure on EM asset prices is the high level of non-financial corporate debt in relation to GDP.
“As monetary policy continues to diverge and the Fed begins lift-off, countries with large amounts of corporate debt, especially in USD, will face difficulties, with rising prospects for corporate distress, weakening capital investment and growth,” he said.
The IIF’s notes of caution followed similar warnings from the International Monetary Fund earlier in the week, which said that “emerging markets should prepare for an increase in corporate failures”.
Dario Perkins, an economist at Lombard Street Research, said that there was now an “obvious parallel” with the late 1990s, when a string of emerging market crises sparked fears of a global downturn.
“While the emerging crash did have a negative impact on growth in the US and Europe, those fears were overdone,” Mr Perkins said. “But back then, the emerging economies were less significant and central banks had room to respond.”
The prospect of higher US interest rates has already pulled capital away from emerging markets, while China has pivoted away from a credit-fuelled investment binge.
This has triggered market turbulence twice over the last year, Mr Perkins said, as investors had been alerted to the ever-growing risks of a global downturn
While emerging markets may have represented a small chunk of the global economy in the 1990s, their share of activity is now much larger.
“We may have entered part three of the global crisis that started in 2008,” Mr Perkins warned, following the Lehman Brothers crash and the subsequent eurozone debt crunch.
“Even if the US and European economies prove resilient to the EM downturn, the global backdrop is certain to become more deflationary,” Mr Perkins added.
Sunday Indo Business
Global Financial Melt-Down Resumes Sept 1
Stocks and Commodities Hit By Weak China Data
Financial TimesToday. Equities are sliding, industrial commodities are relapsing and investors are seeking Treasuries and the yen as fresh…
China Worries Leave Global Stocks Bruised
Financial Times Tuesday 17:30 BST. World stock markets suffered another bruising session as concerns about the outlook for global growth were rekindled by…
GLOBAL CAPITALIST CRASH INTENSIFIES -August 24
From Irish Times First published:Sat, Aug 22, 2015, 01:00
World markets suffer worst one-day falls in nearly four years
US and European shares tumble and commodity prices slide amid growth concerns
World stock markets will open on Monday seeking to recover from the worst one-day falls in nearly four years.
US and European shares tumbled and commodity prices slid further yesterday, with US markets closing last night down by more than 3 per cent, reflecting similar losses in European markets earlier in the day.
The Standard and Poor’s 500 Index capped a weekly loss of 5.8 per cent, its worst drop in almost four years.
The turmoil in the markets is highlighting concerns amid investors that the US, UK and Europe may not resume growth quickly enough to make up for the slowdown in emerging markets.
It has also increased speculation that the US Federal ReserveBoard might hold off on increasing interest rates next month, as had been expected.
The collapse was triggered by fresh data from China suggesting its manufacturing sector shrank at its fastest pace in more than six years in August as domestic and export demand dwindled.
This comes just a week after the devaluation of the renminbi and in the wake of a sharp plunge in the Chinese stock market, adding to mounting concerns about the health of the Chinese economy.
Emerging market assets also took another hammering and oil prices headed toward their longest losing streak in almost 30 years, threatening to dip below $40 (about €35) a barrel for the first time since the financial crisis.
Dublin’s Iseq
Dublin’s Iseq also fell by 3 per cent, with notable losses for index heavyweights such as CRH, Ryanair and Smurfit Kappa
Figures released yesterday showed growth in the US manufacturing sector slowed unexpectedly to its weakest pace in almost two years in August.
Traders said the falls in US stocks were driven by fears that China’s worst domestic slowdown since the global financial crisis could spread to both developed and other emerging markets.
………………………………………………………………………………………………………………………………………….
Michael Roberts, Marxist Economist, is good on the ’emerging market’ crash here.
He notes the increase in private corporate debt by a third since 2007:
Investment bank JP Morgan reckons that the debt of non-financial corporations in emerging economies has surged from about 73% of GDP before the financial crisis to 106% of GDP as of 4Q14. This 34%-point increase is enormous, averaging nearly 5%-points per year since 2007. In previous research, the IMF has found that an increase in the ratio of credit to GDP of 5%-points or more in a single year signals a heightened risk of an eventual financial crisis. Many emerging market economies have registered such an increase since 2007. Hence the conclusion of the credit analysts, S&P, that “we have reached an inflexion point in the corporate credit cycle”.
At the same time time the Chinese rate of profit has dropped from around 13.5% to about 9% since 2011.
—————————————————————————————————————————————————
Germany’s record trade surplus is a bigger threat to euro than Greece
Daily Telegraph Friday August 21
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11584031/Germanys-record-trade-surplus-is-a-bigger-threat-to-euro-than-Greece.html
| From Financial Times To-Day
Stock Sell-off Deepens after weak China Manufacturing Reading
Friday 08:30 BST. Stocks, commodities and emerging market currencies are under the cosh as disappointing China manufacturing data add to… |
Daily Telegraph’s Ficenec: ‘Only Matter of Time Before Stock Markets Collapse’–NEWSMAXFINANCE
Global central bank easing has run amuck, and the results won’t be pretty, says London Daily Telegraph columnist John Ficenec.
“From China to Brazil, the central banks have lost control, and at the same time the global economy is grinding to a halt,” –he writes.
“It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations,” he warns. “Time is now rapidly running out.”
He claims that the central banks are rapidly losing control.
…………………………………………………………………………………………………………………………………..
This prediction is not coming from some wild-eyed socialist but from the right-wing British Daily Telegraph news service!
Doomsday clock for global market crash strikes one minute to midnight as central banks lose control
China currency devaluation signals endgame leaving equity markets free to collapse under the weight of impossible expectations
By John Ficenec
PUBLISHED17/08/2015 | 13:37 in Irish Independent from Telegraph.co.uk
It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
WHEN the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.
Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
The FTSE 100 has now erased its gains for the year, but there are signs things could get a whole lot worse.
1 – China slowdown
China was the great saviour of the world economy in 2008. The launching of an unprecedented stimulus package sparked an infrastructure investment boom. The voracious demand for commodities to fuel its construction boom dragged along oil- and resource-rich emerging markets.
The Chinese economy has now hit a brick wall. Economic growth has dipped below 7pc for the first time in a quarter of a century, according to official data. That probably means the real economy is far weaker.
The People’s Bank of China has pursued several measures to boost the flagging economy. The rate of borrowing has been slashed during the past 12 months from 6pc to 4.85pc. Opting to devalue the currency was a last resort and signalled the great era of Chinese growth is rapidly approaching its endgame.
Data for exports showed an 8.9pc slump in July from the same period a year before. Analysts expected exports to fall only 0.3pc, so this was a huge miss.
The Chinese housing market is also in a perilous state. House prices have fallen sharply after decades of steady growth. For the millions who stored their wealth in property, it makes for unsettling times.
2 – Commodity collapse
The China slowdown has sent shock waves through commodity markets. The Bloomberg Global Commodity index, which tracks the prices of 22 commodity prices, fell to levels last seen at the beginning of this century.
The oil price is the purest barometer of world growth as it is the fuel that drives nearly all industry and production around the globe.
Brent crude, the global benchmark for oil, has begun falling once again after a brief rally earlier in the year. It is now hovering above multi-year lows at about $50 per barrel.
Iron ore is an essential raw material needed to feed China’s steel mills, and as such is a good gauge of the construction boom.
The benchmark iron ore price has fallen to $56 per tonne, less than half its $140 per tonne level in January 2014.
3 – Resource sector credit crisis
Billions of dollars in loans were raised on global capital markets to fund new mines and oil exploration that was only ever profitable at previous elevated prices.
With oil and metals prices having collapsed, many of these projects are now loss-making. The loans raised to back the projects are now under water and investors may never see any returns.
Nowhere has this been felt more acutely than shale oil and gas drilling in the US. Tumbling oil prices have squeezed the finances of US drillers. Two of the biggest issuers of junk bonds in the past five years, Chesapeake and California Resources, have seen the value of their bonds tumble as panic grips capital markets.
As more debt needs refinancing in future years, there is a risk the contagion will spread rapidly.
4 – Dominoes begin to fall
The great props to the world economy are now beginning to fall. China is going into reverse. And the emerging markets that consumed so many of our products are crippled by currency devaluation. The famed Brics of Brazil, Russia, India, China and South Africa, to whom the West was supposed to pass on the torch of economic growth, are in varying states of disarray.
The central banks are rapidly losing control. The Chinese stock market has already crashed and disaster was only averted by the government buying billions of shares. Stock markets in Greece are in turmoil as the economy grinds to a halt and the country flirts with ejection from the eurozone.
Earlier this year, investors flocked to the safe-haven currency of the Swiss franc but as a €1.1 trillion quantitative easing programme devalued the euro, the Swiss central bank was forced to abandon its four-year peg to the euro.
5 – Credit markets roll over
As central banks run out of silver bullets then, credit markets are desperately seeking to reprice risk. The London Interbank Offered Rate (Libor), a guide to how worried UK banks are about lending to each other, has been steadily rising during the past 12 months. Part of this process is a healthy return to normal pricing of risk after six years of extraordinary monetary stimulus. However, as the essential transmission systems of lending between banks begin to take the strain, it is quite possible that six years of reliance on central banks for funds has left the credit system unable to cope.
Credit investors are often far better at pricing risk than optimistic equity investors. In the US while the S&P 500 (orange line) continues to soar, the high yield debt market has already begun to fall sharply (white line).
6 – Interest rate shock
Interest rates have been held at emergency lows in the UK and US for around six years. The US is expected to move first, with rates starting to rise from today’s 0pc-0.25pc around the end of the year. Investors have already starting buying dollars in anticipation of a strengthening US currency. UK rate rises are expected to follow shortly after.
7 – Bull market third longest on record
The UK stock market is in its 77th month of a bull market, which began in March 2009. On only two other occasions in history has the market risen for longer. One is in the lead-up to the Great Crash in 1929 and the other before the bursting of the dotcom bubble in the early 2000s.
UK markets have been a beneficiary of the huge balance-sheet expansion in the US. US monetary base, a measure of notes and coins in circulation plus reserves held at the central bank, has more than quadrupled from around $800m to more than $4 trillion since 2008. The stock market has been a direct beneficiary of this money and will struggle now that QE3 has ended.
8 – Overvalued US market
In the US, Professor Robert Shiller’s cyclically adjusted price earnings ratio – or Shiller CAPE – for the S&P 500 stands at 27.2, some 64pc above its historic average of 16.6. On only three occasions since 1882 has it been higher – in 1929, 2000 and 2007.
Telegraph.co.uk
Analysis by Michael Roberts on his Blog
New post on Michael Roberts Blog
|
|
|
Here is my usual resume of the top ten most read posts on my blog in 2015.
Topping the list was my post in August, Market turmoil, which picked up on the plunge in global stock markets. It seems that blog followers were keen to note that, as I said in that post, the “big truth” about the global ‘economic recovery’, such as it is since 2009, is that it had been mainly based, not on investment in productive sectors to raise productivity and employment, but in fictitious capital, (buying back shares, buying government and corporate bonds and property). Cheap and unending money from central banks through their quantitative easing (QE) programmes has restored the banking system, but not the productive part of capitalist economies. Debt has not been reduced overall but extended in the corporate sectors of the major economies. There is still a huge layer of fictitious capital, as Marx called it. It appears that global investors are beginning to realise that the ‘recovery’ is fictitious and is based only on yet another credit-fuelled mirage. Markets continued to be weak through to the end of the year.
Also in the top ten was a post made slightly earlier in August about the demise of the so-called emerging economies. In The emerging market crisis returns, I made the point that for the first time since the emerging market crisis of 1998, the so-called BRICS economies (Brazil, Russia, India, China and South Africa) were in trouble, as well as the next range of ‘developing’ economies like Indonesia, Thailand, Turkey, Argentina, Venezuela etc.
Previously rising commodity prices in oil, base metals and food had led to fast growth in many of these economies. But now the commodity boom had collapsed. Commodity prices have fallen by 40% since 2011. This was another indicator of the long depression and deflationary pressures in the world economy. Alongside rising debt was falling profitability and weak consumer demand in emerging markets outside China.
But the most popular posts were those on the huge economic and political crisis in Greece, which dominated the thinking of many in the first half of 2015. The leading Greek post was my critique of Greece’s economic star, Yanis Varoufakis, an erudite heterodox economist with Marxist leanings who briefly became finance minister in Greece’s leftist Syriza government. My post took up what I considered were inconsistencies in his Marxist economic thinking. Varoufakis considers himself an “erratic Marxist”. I argued that he was more the former than the latter.
Several other posts on Greece made the top ten in 2015. First, there was the post I wrote before Syriza won the Greek general election last January, called, Syriza, the economists and the impossible triangle. It was a review of the ideas of the now current Syriza finance minister, Euclid Tsakalotos who took over from Varoufakis. I argued that the key issue was reducing the huge public debt that Greece had incurred from previous bailouts. Tsakalotos’ position appeared to be that a compromise would be reached with the EU leaders to reduce that.
But as I write today, nearly 12 months later, such a compromise has not occurred. On the contrary, Greek debt is still rising and growth has not been restored, while the Syriza government imposes further measures of austerity to meet the demands of the Troika. In the post, I posed what some have called the impossible triangle: namely could Syriza 1) stay in power, 2) reverse austerity and 3) stay in the euro? Surely, one or more of these aims would have to go? It was the second. I predicted that Syriza would split under the pressure but that Greece would still be in the Eurozone by January 2016.
Readers of my blog also followed two further posts on Greece. In March, I posted Greece: Keynes or Marx?, in which I took a look at the position being taken by Costas Lapavitsas, a leading member of the Left Platform in Syriza and a Marxist economist from SOAS in London University, then a newly-elected Greek MP. Lapavitsas had strong criticisms of Varoufakis and PM Tsipras. But I took him to task for leaning on Keynesian rather than Marxist policies for the way out for Greece. I also criticised his Keynesian-style solution that leaving the Eurozone and devaluing must be done first before socialist measures could be considered. Read this post again to see what you think and whether you agree with Lapavitsas or me.
Then there was my post in July after the Greek people, against all the odds, had voted 60% to reject the Troika bailout and austerity in a referendum. The post posed the question: what now? I said there were three possible economic policy solutions. There was the neoliberal solution demanded by the Troika. This is to keep cutting back the public sector and its costs, to keep labour incomes down and to make pensioners and others pay more. This was aimed at raising the profitability of Greek capital and with extra foreign investment, restore the economy.
There was the Keynesian one, boosting public spending to increase demand, introducing a cancellation of part of the government debt and leaving the euro to introduce a new currency (drachma) that is devalued by as much as is necessary to make Greek industry competitive in world markets. I argued that this would not work.
The third option was a socialist one that recognises that Greek capitalism cannot recover to restore living standards for the majority, whether inside the euro in a Troika programme or outside with its own currency and no Eurozone support. The socialist solution was to replace Greek capitalism with a planned economy where the Greek banks and major companies are publicly owned and controlled and the drive for profit is replaced with the drive for efficiency, investment and growth.
Although posts on Greece were prominent in the top ten, the most popular were theoretical ones around the issues of the theory of crises under capitalism and its long-term future, expressing the interest in these issues among many blog followers. The most popular of all posts after stock market turmoil and Yanis Varoufakis was the one on Paul Mason’s new book, Post-capitalism.
Mason argued that capitalism is set to be replaced by ‘postcapitalism’ for three reasons. First, there is an information revolution which is creating a society of abundance in information, making a virtually costless and labour-saving economy. Second, this information revolution cannot be captured by the capitalist market and the big monopolies. And third, already the ‘post-capitalist’ mode of production, based on free ownership and cooperation in information, is emerging from within capitalism, just as capitalism emerged from within feudalism.
In my post. I commended Mason’s optimistic vision for a post-capitalist world but reckoned Mason ignored the two sides of technical advance under capitalism. Yes, one side suggests the potential for a super abundant, low labour time world. But the other suggests inequality, class struggle and regular and recurrent crises. Postcapitalism’ cannot emerge without resolving this contradictions generated by capitalism. Mason’s book and the seeming rise of robots and artificial intelligence continue to provoke debate among Marxists. And in August and September, I did three posts on the rise of robots.
Another key debate among Marxist economists, namely the nature and causes of crises in capitalism, led to a post in June in the top ten. Entitled There is a long term decline in the rate of profit and I am not joking!, it took up the issues of debate among Marxist economists at a special Capitalism Workshop in London last May which included several Marxist economic luminaries. Marx’s law of profitability came in for a hammering for its relevance to crises, both theoretically and empirically. The papers presented at that Workshop will be published as a series of chapters in a special edition of Science and Society in 2016.
As a follow-up to that debate and to the one that I had with Professor Heinrich in Berlin in the same month, I recently posted a short essay called A Marxist theory of economic crises in capitalism that presented my arguments for relying Marx’s law of the tendency of the rate of profit to fall as the basis for explaining recurrent and regular slumps under capitalism. That got into the top ten.
Finally, the theme of rising inequality of wealth and incomes in the major capitalist economies remains a subject of keen interest among blog readers, and for the third year running, the post on the latest measure of global wealth inequality as provided by Credit Suisse’ annual report made the top ten. Yes, the top 1% of wealth holders in the world own nearly 50% of all the wealth (properties, land, companies, shares and cash) globally. Such is the result of 250 years of capitalist ‘progress’: no real change in overall inequality seen in previous class societies.
Finally, let me thank all my (now thousands) of blog followers for their interest in the blog this year and also to those who have made comments on my posts (sometimes favourably, but often critically). During 2015, I had over 400,000 viewings of posts on the blog and over 185,000 different visits to the blog.
The blog aims to provide information on the world economy, discuss and develop economic theory and research from a Marxist point of view and comment on economic policy with the aim of replacing capitalism with a new stage of human social organisation, socialism. The task continues.
Also remember, you can follow my Facebook site here, where I cover day-to-day items of interest.
https://www.facebook.com/Michael-Roberts-blog-925340197491022/
You can get my Essays on Inequality here.
Createspace https://www.createspace.com/5078983
or Kindle version for US:
http://www.amazon.com/dp/B00RES373S
and UK
http://www.amazon.co.uk/s/?field-
keywords=
Essays%20on%20inequality%20%28Essays%20on%20modern%
20economies%20Book%201%29&node
=341677031.
And hopefully, in the early part of 2016, my new book, The Long Depression, will be out for you all to consider, criticise and review.
http://www.haymarketbooks.org/pb/The-Long-Depression
Best for the New Year.
michael roberts | December 31, 2015 at 8:59 am | Categories: capitalism, economics, marxism, Profitability | URL: http://wp.me/pLequ-3gK
|
|
Like this:
Like Loading...
Related
News of Crash Reaches RTE and Irish Front Pages after more than 1 week delay!
Irish “Recovery” in Danger? FG/Lab PLaced Ireland’s Interests in the Hands of Global Capitalism
Analysis by Marxist Economist
-Michael Roberts-https://thenextrecession.wordpress.com/2015/08/24/market-turmoil/
Shanghai shares dived 9pc to a six-month low, wiping out this year’s gains—-Against this gloomy backdrop, spreadbetters forecast a sharply lower open for Britain’s FTSE, Germany’s DAX and France’s CAC indexes. “One of the fears stalking global markets is the idea that every country wants a weaker currency. That such a state of affairs is logically impossible is reason enough to elicit worries about financial instability”.-Chris Johns, Irish Times Aug 24 “Copper, seen as a barometer of global industrial demand, tumbled with three-month copper on the London Metal Exchange hitting a six-year low of $4,920 a tonne. Aluminium also slid to its lowest since 2009 of $1,526 a tonne”.-Reuters August 24—–SCROLL DOWN FORMORE