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Gene Ellis

PrudentBear - 0 views

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GEP com nytimes nytimes com global europe GDP crisis syndicate euro

shared by Gene Ellis on 09 Jul 12 - No Cached
  • German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.
  • Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.
  • Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.
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  • Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.
  • Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.
  • While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.
  • Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.
  • German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.
  • For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.
  • Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.
  • Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
  • In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”
  • Political will for integration
  • In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.
  • A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.
  • Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)
  • A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.
  • Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.
  • For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
  • But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.
  • by Satyajit Das
Gene Ellis

The delicate balance of fixing the eurozone | Martin Wolf's Exchange - 0 views

blogs.ft.com/...balance-of-fixing-the-eurozone

shared by Gene Ellis on 17 Jul 12 - No Cached
  • The euro itself was a leading cause of this crisis by ushering in a remarkably swift convergence in interest rates, which had the effect of directing too much capital into countries that formerly had had to pay high interest rates. This undermined the competitiveness of these countries through inflation and gave rise to huge deficits in their current accounts.
  • The euro is not suffering from a mere confidence crisis that can be resolved by assuaging the markets; it is experiencing a profound balance‐of‐payment crisis that is being prolonged by the expansion of public financial aid.
  • Since autumn 2007, long before the official bail‐out initiatives began, some of the crisis‐hit countries have replaced dwindling private capital imports and capital flight with their money‐printing presses (Target credits).
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  • 5. Export surpluses create no real value if they translate into claims vis‐à‐vis countries which ultimately cannot pay their debts,
  • 6. The ECB Council overstepped its mandate when it transferred to Eurozone national central banks, primarily the Bundesbank, the task of financing the public and private deficits of other countries.
  • 7. Germany’s liability for the bail‐out initiatives does not total 211 billion euros, as often cited, but is actually now close to 600 billion euros if the far larger bailout initiatives of the ECB are included in this figure.
  • 8. The Target credits and the purchase of government bonds by the ECB system transfer the investment risk of private investors and banks to the taxpayers of economically sound countries, posing a threat to the euro because they offer debtor countries incentives to advocate inflationary policies at the ECB Council which would help them defer their obligation to repay their foreign debts.
  • 9. Eurobonds would undermine debt discipline, lead to much higher interest burdens for the German state, and anew induce capital flows in Europe that would exacerbate the external imbalances.
  • ) Target debts are to be settled on an annual basis with interest‐bearing, marketable assets as in the US.
  • g) Countries that are not competitive enough to repay their foreign debts should, in their own interest, leave the Monetary Union.”
  • I also appreciate the fact that the declaration envisages a credit boom in Germany that would ultimately rebalance the eurozone economy. Nevertheless, this rebalancing is likely to prove painfully slow and certainly requires a prolonged period of relatively high inflation in Germany, to offset relatively low inflation in the vulnerable countries. It is far from clear that German public opinion is prepared for such an outcome.
  • More important, I do not believe a currency union that takes for granted the possibility of sovereign defaults and even exit would prove workable. It is a recipe for extreme financial instability, with huge runs on credit to banks, private non-banks and governments built in.
  • mechanisms of financing and adjustment. Permanent transfers from some countries to others, merely to offset a lack of
  • competitiveness (rather than accelerate income convergence), are indeed undesirable. Nevertheless, financing needs to be sufficiently large and generous to give vulnerable countries some chance of managing the adjustment to shocks, without sovereign default, mass private bankruptcies and implosion of financial systems.
  • Gene Ellis on 17 Jul 12
     
    The second major article on Professor Hans-Werner Sinn's attack on the premises of the eurozone. TARGET 2 analysis, plus...
Gene Ellis

Worried Banks Pose Obstacle to Forming Financial Union - NYTimes.com - 0 views

www.nytimes.com/...-push-for-financial-union.html

banks pose obstacle union nytimes nytimes com com

shared by Gene Ellis on 18 Jun 12 - No Cached
  • French loans to Spanish banks plunged 34 percent in the fourth quarter of 2011 compared with the previous quarter, according to the latest data from the Bank for International Settlements.
  • For Italian banks, French bankers cut their exposure by 16 percent. German banks have also been increasingly wary of their Italian and Spanish peers, reducing lending to them by about 19 percent last year
  • In the last six months, as fears about Spain and Greece have intensified, Spanish and Italian banks have been by far the biggest users of the European Central Bank’s program of cut-rate, three-year loans to banks that cannot find money elsewhere.
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  • But instead of funneling that money back into the Spanish and Greek economies as loans to cash-starved businesses and individuals, these banks have become the primary buyers of their governments’ bonds.
  • Most delicate will be whether the Spanish banks receiving the largest cash injections, like the nationalized mortgage giant Bankia, will be forced to impose losses on holders of their subordinated bonds. Those are the investors whose bonds are not backed by collateral and are thus considered more risky.
  • In Spain, though, the problem is that 62 percent of the holders of Bankia’s subordinated debt are Spanish individual investors, not overseas hedge funds and investment banks. It is not likely that Madrid will be willing to hit those citizens with a 65 percent loss — the loans are currently priced at about 35 cents on the dollar — at a time of 25 percent unemployment in the country.
  • “There are compelling reasons for the euro zone to insist on losses for subordinated and even senior bondholders, the least of which is a reduction in moral hazard,” said Adam Lerrick, an expert on banking and sovereign debt at the American Enterprise Institute. “Losses for bondholders is now euro zone policy, so Europe’s credibility is also at stake.”
  • Gene Ellis on 18 Jun 12
     
    Good article on bank behavior
Gene Ellis

Op-ed: The End of the Euro: A Survivor's Guide - 0 views

www.iie.com/...oped.cfm

EUROCRISIS

shared by Gene Ellis on 16 Jun 12 - No Cached
  • Ms. Lagarde's empathy is wearing thin and this is unfortunate—particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe.
  • The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange "internal devaluations" (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.
  • During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors and about 27 billion euros owed to the IMF.
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  • More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.
  • But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system.
  • No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,
  • Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that—to avoid a greater calamity—all remaining member nations need to be provided with unlimited funding for at least 18 months. Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.
  • The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations—an on-again, off-again pattern of support—and that simply won't be enough to stabilize the situation.
  • he automatic mechanics of Europe's payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d'Italia and Banco de Espana—essentially to the Italian and Spanish states. German taxpayers will begin to see through this scheme and become afraid of further losses.
  • there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns—and that those credits may not get repaid in full. The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates.
Gene Ellis

Has the U.S. Economy Been Permanently Damaged? : The New Yorker - 0 views

www.newyorker.com/...ad-news-and-the-good-news.html

damage us economy

shared by Gene Ellis on 09 Jan 14 - No Cached
  • Although the study uses some sophisticated statistical methods, its basic point is straightforward: in the long term, economic output (G.D.P.) is constrained by the quantity and the quality of economic inputs (labor, capital, and technology). If the growth rate and quality of these inputs decline, the potential growth rate of G.D.P. will fall, too—it’s just a matter of arithmetic.
  • With hiring rates down, many workers have given up searching for jobs and have dropped out of the labor force.
  • With budgets tight, corporations and government departments have cut back on investments in new plants and machinery, computer hardware and software, and research and development.
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  • The authors come up with a variety of numbers, including one that has received a lot of attention: potential G.D.P.—broadly speaking, the level of G.D.P. consistent with stable inflation—“is currently about 7 percent below the trajectory it appeared to be on prior to 2007.” According to the latest figures from the Commerce Department, the G.D.P. is now close to seventeen trillion dollars, and seven per cent of that figure is $1.2 trillion. This is a lot of money to have gone missing, especially if it will never be recovered. Hence Krugman’s dire conclusion: “By tolerating high unemployment we have inflicted huge damage on our long-run prospects …. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come.”
  • As well as figuring out the current level of potential G.D.P., the authors estimate its growth rate. This is the more important figure, because it’s what determines living standards over the long term
  • In the period from 2000 to 2007, the paper says the average potential growth rate of G.D.P. was 2.6 per cent.
  • For 2012, the authors estimate the potential growth rate at only 1.3 per cent.
  • In the nineteen-eighties, Larry Summers and Olivier Blanchard, who is now the chief economist of the I.M.F., resurrected the idea and gave it a new name, which they borrowed from engineering: hysteresis. Blanchard and Summers examined hysteresis in Europe, where high rates of unemployment have long been a problem.
  • The good news is that things aren’t quite as bad as the figures in the Fed paper might suggest. If we can get policy right and sharply increase the level of over-all demand in the economy, most of the damage done in the past five years is reversible.
  • At the moment, sadly, there is no prospect of any more fiscal stimulus, let alone a war-sized one, and the onus is falling on the Fed to gee up the economy.
Gene Ellis

The euro crisis: Debtors' prison | The Economist - 0 views

www.economist.com/...n-more-government-debt-debtors

shared by Gene Ellis on 29 Oct 13 - No Cached
  • But the reforms often fail to work. The Spanish law is intended to promote restructuring of viable firms but in practice most insolvencies end in liquidation after lengthy court proceedings.
  • High household debt helps explain why the Netherlands, along with Italy and Spain, remained in recession in the second quarter of 2013 even as the euro area in general embarked on recovery. Dutch GDP this year will be 2% lower than in 2011 and more than 3% below its previous peak, in 2008.
  • it illustrates the malign effect of high debt when house prices fall
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  • One aim of the exercise is to identify the bad debts that are fouling up euro-zone banks and preventing the flow of new credit. This is important because parts of the single-currency area are crippled not just by public borrowing but by private debt, most of which is sitting on banking books.
  • High private debt is more detrimental to growth than high public debt, according to recent research by the IMF.
  • The malign effect of high private debt becomes apparent in the busts that follow credit-driven booms. Households that have borrowed too much in relation to their income trim their spending, the main component of GDP. Overleveraged firms avoid investing and concentrate on shrinking their balance-sheets by paying off loans. As bad debts erode their capital, banks become more reluctant to lend. These adverse trends reinforce each other, increasing the overall drag on growth.
  • Other balance-sheet indicators also suggest that Italian business is in a bad way. For example, 30% of corporate debt is owed by firms whose pre-tax earnings are less than the interest payments they have to make. That share of frail companies is even higher in Spain and Portugal (40% and nearly 50% respectively).
  • Little progress has been made to lighten the private-debt burden since the crisis began. Though it eased in Spain from 227% of GDP in 2009 to 215% in 2012, it rose over the same period in Cyprus, Ireland and Portugal. In Britain, by contrast, private debt fell from 207% of GDP in 2009 to 190% in 2012 thanks to improvements by both households and firms.
  • There is an inherent contradiction between the need for debtor countries in the euro zone to regain competitiveness through lower prices and at the same time to ease excessive debt with a dose of inflation.
  • Firms that have overborrowed are reluctant to embark on new ventures, and banks are in any case reluctant to lend because their balance-sheets are peppered with bad debts. This unhappy state of affairs prevails throughout southern Europe though its precise causes vary.
Gene Ellis

RealTime Economic Issues Watch | Transatlantic Economic Sanctions Against Russia - 0 views

blogs.piie.com/realtime

shared by Gene Ellis on 25 Apr 14 - No Cached
  • Transatlantic Economic Sanctions Against Russia
  • First, I have recommended to government officials that US and EU negotiators give priority to energy cooperation and promotion of US exports of liquefied natural gas to Europe during the fourth round of talks on the Transatlantic Trade and Investment Partnership (TTIP) that start on March 10 in Brussels. Efforts should be made to conclude this part of the agreement quickly and immediately implement the obligations on a provisional basis
  • Second, the United States and the European Union should call for special consultations in the International Energy Agency (IEA) to review current oil and gas supply arrangements and reserves in Europe. The IEA should also be called on to assess the implications of the crisis in Ukraine for member and nonmember countries and their options for dealing with potential supply disruptions. Ukraine participates in consultations with IEA members on a regular basis anyway and clearly should be doing so now.
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  • they would help inoculate European economies against the adverse effects of energy disruptions in the medium term.
  • Consideration should be given to invoking GATT Article XXI, which provides exceptions for national security reasons from rights and obligations under the World Trade Organization (WTO), for example. Invoking this WTO exception would allow across-the-board actions against Russia without prior notification or even justification. The national security exception of Article XXI is that broad. In brief, the United States and the European Union could remove in one step all the WTO benefits they accorded Russia when it acceded to the WTO in August 2012. Doing so would disrupt bilateral trade and investment, possibly kicking tariffs back up to Smoot-Hawley levels of the 1930s.
Gene Ellis

Italy Falls Back Into Recession, Raising Concern for Eurozone Economy - NYTimes.com - 0 views

www.nytimes.com/...cern-for-eurozone-economy.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Italy Falls Back Into Recession, Raising Concern for Eurozone Economy
  • Some economists argue that the region is already well into a so-called lost decade.
  • Analysts surmised that the strained relations with Russia as well as turmoil in the Middle East had undercut demand for Italian exports, in particular fashion and other luxury goods.
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  • “I definitely expect that things will get worse,” he said.
  • The European Union exported agricultural goods worth 11.8 billion euros, or $15.8 billion, to Russia last year, and sales have been rising at a rate of almost 15 percent a year.
  • The economic data and news that Russia was massing troops and military equipment on the Ukrainian border caused stock prices to fall across Europe on Wednesday.
  • Separately, the German Federal Statistical Office reported on Wednesday that new industrial orders in Germany fell 3.2 percent in June compared with May. Analysts had expected orders to increase.
  • For Italy, the deteriorating economy puts greater pressure on Prime Minister Matteo Renzi, who less than a week ago promised not to impose any more government budget cuts and to invest in improving the country’s roads and other infrastructure. Such promises will be difficult to keep if slower growth, which usually translates into higher unemployment and lower corporate profits, limits tax receipts.A slower economy also endangers Italy’s ability to comply with eurozone rules on budget deficits.
  • Italy’s 2.1 trillion euro government debt equals 136 percent of its annual gross domestic product, the second-highest debt ratio in the eurozone, after Greece.
  • They said Italy’s problems stemmed more from its failure make changes needed to improve the performance of its economy.
  • The slow pace of structural reforms is worrisome,” said Paolo Manasse, a professor of macroeconomics at Bologna University. He said there was no sign of progress on necessary steps like selling off state-owned assets or overhauling the labor market or public pension system.
Gene Ellis

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels - NYTimes.com - 0 views

www.nytimes.com/...ice-vs-conventional-fuels.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Solar and Wind Energy Start to Win on Price vs. Conventional Fuels
  • In Texas, Austin Energy signed a deal this spring for 20 years of output from a solar farm at less than 5 cents a kilowatt-hour.
  • Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a kilowatt-hour at the low end, with wind at 3.7 cents.
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  • Mr. Mir noted there were hidden costs that needed to be taken into account for both renewable energy and fossil fuels. Solar and wind farms, for example, produce power intermittently — when the sun is shining or the wind is blowing — and that requires utilities to have power available on call from other sources that can respond to fluctuations in demand.
  • “Renewables had two issues: One, they were too expensive, and they weren’t dispatchable. They’re not too expensive anymore.”
  • Especially in the interior region of the country, from North Dakota down to Texas, where wind energy is particularly robust, utilities were able to lock in long contracts at 2.1 cents a kilowatt-hour, on average, she said. That is down from prices closer to 5 cents five years ago.
  • Already, solar executives are looking to extend a 30 percent federal tax credit that is set to fall to 10 percent at the end of 2016.
Gene Ellis

Traffic Snarls Expected in Europe as Taxi Drivers Protest Against Uber - NYTimes.com - 0 views

bits.blogs.nytimes.com/...ber-in-europe-to-snarl-traffic

shared by Gene Ellis on 11 Jun 14 - No Cached
  • Traffic Snarls Expected in Europe as Taxi Drivers Protest Against Uber
  • Several of Europe’s largest cities were snarled by traffic jams on Wednesday when thousands of taxi drivers blocked roads and held rallies in protest of ​an upstart​ American​ service that lets customers book rides through smartphones.
  • Founded in 2009
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  • Before the protest in London, Uber said on Wednesday that it had opened up its booking platform so that the city’s black taxis, which previously were not included in the start-up’s system, could now take bookings through the smartphone app.
  • Europe’s taxi operators will demand that local lawmakers clamp down on the California-based Uber, which now operates in 100 cities in 36 countries.
  • “In Paris, the number of taxis hasn’t changed since the 1950s,” said Pierre-Dimitry Gore-Coty, Uber’s regional general manager for Northern Europe. “The strikes are an attempt to desperately fight against competition in the market.”
  • France has been one of Uber’s toughest battlegrounds. Faced with protests by the powerful local taxi industry, which has been closed to competition for decades, the government in December sought to curb the rise of Uber and rival upstarts by forcing the car services to wait 15 minutes after receiving a request before picking up a client.
  • They also say the company’s technology, which allows drivers to ​use a smartphone-like device to ​calculate fares based on time and distance, breaks local laws. The city’s authorities have asked a local court to rule on that issue.
  • Partly, London taxi drivers resent the idea of G.P.S.-equipped freelancers presuming to practice their time-honored craft.
Gene Ellis

Russia puts squeeze on Ukraine, jacks up natural gas prices 40 percent - CSMonitor.com - 0 views

www.csmonitor.com/...-natural-gas-prices-40-percent

shared by Gene Ellis on 19 Feb 15 - No Cached
  • Russia puts squeeze on Ukraine, jacks up natural gas prices 40 percent
  • On Thursday, the International Monetary Fund threw a financial lifeline, agreeing to stump up $14-18 billion as part of a two-year bailout package in exchange for tough economic reforms.
  • Russia's milk union has asked for a ban on Ukrainian dairy products
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  • Russia accounts for 13 percent of Ukraine's iron and steel exports, and the political crisis has already hit shipments from Ukrainian steelmakers this year.
  • Sales of rebar - a steel bar or mesh of steel wires used in reinforced concrete - to the Commonwealth of Independent States (CIS), a bloc of former Soviet states, fell 70 percent to 45,000 tonnes in January compared with the average monthly export figure in the first half of 2013.Russian steelmakers have aggressively lobbied their government to implement measures to defend domestic producers from Ukrainian imports.
  • Tough competition on the international steel market makes the chance of (steelmakers) expanding their export market presence very low," Eavex Capital metals analyst Ivan Dzvinka said in Kiev
  • Manufacturers of train carts and turbo engines, which together account for 2.5 percent of Ukraine's total exports, will be hit particularly hard.
  • "Re-orienting these industries to Europe would be nearly impossible without very heavy investment,
  • "The point of the FTA is not to make it possible for Ukraine to export Soviet-era tractors to Europe. That's not going to happen. But it could eventually lead to Ukraine becoming a producer of Peugeots, Volkswagens, fridges or Nokia telephones," the EUISS's Popescu said.
Gene Ellis

Blueprints for Taming the Climate Crisis - NYTimes.com - 0 views

www.nytimes.com/...taming-the-climate-crisis.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Blueprints for Taming the Climate Crisis
  • Within about 15 years every new car sold in the United States will be electric. In fact, by midcentury more than half of the American economy will run on electricity. Up to 60 percent of power might come from nuclear sources. And coal’s footprint will shrink drastically, perhaps even disappear from the power supply.
  • “This will require a heroic cooperative effort,” said Jeffrey D. Sachs, the Columbia University economist who directs the Sustainable Development Solutions Network at the United Nations,
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  • The teams, one in each of the 15 countries, looked at what would be necessary to keep the atmosphere from warming more than 2 degrees Celsius, 3.6 degrees Fahrenheit, above the preindustrial average of the late 19th century, a target that most of the world committed to at the climate summit meeting in Copenhagen five years ago.
  • To do so, CO2 emissions from industry and energy use would have to fall to at most 1.6 tons a year for every person on the planet by midcentury.
  • That is less than a tenth of annual American emissions per person today and less than a third of the world average
  • Lacking any understanding of the feasibility of the exercise, governments postured and jockeyed over which country should be responsible for what
  • This is not achievable by going after low-hanging fruit, such as replacing coal with natural gas in power plants.
  • The decarbonization paths rely on aggressive assumptions about our ability to deploy new technologies on a commercial scale economically.
  • Russia, for instance, hit the target. But Oleg Lugovoy of the Environmental Defense Fund, who worked on the Russian plan, observed that “if we don’t have carbon capture and storage we would have to reconsider.”
  • it does not do away with the main hitch that has stumped progress for decades: How much will this all cost and who will pay for it?
Gene Ellis

Irish Charm With Germans Leads Nation Out of Bailout Wilderness - Bloomberg - 0 views

www.bloomberg.com/...-german-love-ends-bailout.html

shared by Gene Ellis on 13 Dec 13 - No Cached
  • Before the new government could go on the offensive, it needed to play defense. It fended off an attack on Ireland’s 12.5 percent corporate tax rate, the cornerstone of an economic policy that transformed Ireland from a financial backwater into a European hub for companies such as Pfizer Inc., the maker of Viagra, and Google Inc.
  • Two days after commencing his premiership, Irish Prime Minister Enda Kenny, 62, became embroiled in what he called a Gallic spat with French President Nicolas Sarkozy after refusing to raise the tax rate in return for an interest-rate cut on aid.
  • “The attitude was: ‘You misbehaved and here’s what you have to do’,’”
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  • Within months, the central bank injected more than 1 trillion euros of three-year loans into the region’s banking system
  • Banks used the cash to buy sovereign debt
  • Noonan then ramped up his efforts to broker a deal on banking debt. He had a consistent line: it was payback time. The government hadn’t imposed losses on senior bank bondholders, preventing contagion spreading across the euro region from the Irish banking crisis.
  • The economy emerged from recession in the second quarter, unemployment dropped for six months in a row, and house prices in Dublin are rising again. The yield on 10-year bonds is down to 3.5 percent, lower than Italy and Spain.
  • “The Germans disagree all the time until the very end, and then they agree,” he said. “Once you realize that, you keep talking, you keep chipping away.”
Gene Ellis

The Cost of Protecting Greece's Public Sector - NYTimes.com - 0 views

www.nytimes.com/...ing-greeces-public-sector.html

shared by Gene Ellis on 10 Oct 12 - No Cached
  • So today, for every seven private employees who have been laid off, only one has left the public sector.
  • Greece’s creditors — the troika comprised of the European Commission, the European Central Bank and the International Monetary Fund — have made public-sector layoffs a condition for providing the next tranche of the biggest bailout in history.
  • Public employment grew by fivefold from 1970 through 2009 — at an annual growth rate of 4 percent, according to according to a recent academic study by Zafiris Tzannatos and Iannis Monogios.. Over the same four decades, employment in the private sector increased by only 27 percent — an annual rate of less than 1 percent.
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  • According to the Organization for Economic Co-operation and Development, in some government agencies overstaffing was considered to be around 50 percent. Yet so bloated were the managerial ranks that one in five departments did not have any employees apart from the department head, and less than one in 10 had over 20 employees.
  • Wages in the public sector were on average almost one and half times higher than in the private sector.
  • Public sector wages account for some 27 percent of the government’s total expenditures.
Gene Ellis

Suntech Power on Financial Brink - NYTimes.com - 0 views

www.nytimes.com/...-power-on-financial-brink.html

shared by Gene Ellis on 13 Mar 13 - No Cached
  • Suntech announced Tuesday that it was closing its factory in Goodyear, Arizona, at the cost of 43 jobs there. The factory put aluminum frames and electrical junction boxes on solar cells imported from China, so that the fully assembled solar panels would qualify for “Buy American” programs.
  • But China’s approach to renewable energy has proved ruinous, both financially and in terms of trade relations with the United States and the European Union. State-owned banks have provided $18 billion in loans on easy terms to Chinese solar panel manufacturers, financing an increase of more than tenfold in production capacity from 2008 to 2012. This set off a 75 percent drop in panel prices over the same period, which resulted in Chinese companies’ losing as much as $1 for every $3 in sales last year.
  • he United States has responded with tariffs of about 40 percent on solar cells and solar panels from China,
Gene Ellis

The Two Innovation Economies by William Janeway - Project Syndicate - 0 views

www.project-syndicate.org/...-innovation-by-william-janeway

shared by Gene Ellis on 25 Apr 13 - No Cached
  • The strategic technologies that have repeatedly transformed the market economy – from railroads to the Internet – required the construction of networks whose value in use could not be known when they were first deployed.
  • Consequently, innovation at the frontier depends on funding sources that are decoupled from concern for economic value;
  • Financial speculation has been, and remains, one required source of funding. Financial bubbles emerge wherever liquid asset markets exist. Indeed, the objects of such speculation astound the imagination: tulip bulbs, gold and silver mines, real estate, the debt of new nations, corporate securities.
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  • Complementing the role of speculation, activist states have played several roles in encouraging innovation.
  • Occasionally, the object of speculation has been one of those fundamental technologies – canals, railroads, electrification, radio, automobiles, microelectronics, computing, the Internet – for which financial speculators have mobilized capital on a scale far beyond what “rational” investors would provide. From the wreckage that has inevitably followed, a succession of new economies has emerged.
  • In the United States, the government constructed transformational networks (the interstate highway system), massively subsidized their construction (the transcontinental railroads), or played the foundational role in their design and early development (the Internet).
  • For countries following an innovative leader, the path is clear. Mercantilist policies of protection and subsidy have been effective instruments of an economically active state.
  • List noted how Britain’s emergence as “the first industrial nation” at the end of the eighteenth century depended on prior state policies to promote British industry. “Had the English left everything to itself,” he wrote, “the Belgians would be still manufacturing cloth for the English, [and] England would still have been the sheepyard for the [Hanseatic League].”
  • To begin, the “national champions” of the catch-up phase must be rendered accessible to competitive assault. More generally, the state’s role must shift from executing well-defined programs to supporting trial-and-error experimentation and tolerating entrepreneurial failure. And the debilitating “corruption tax” that seems inevitably to accompany economic revolutions must be curbed, as it was in Britain during the nineteenth century and America during the twentieth.
Gene Ellis

Why We Lie - WSJ.com - 0 views

online.wsj.com/...4840904577422090013997320.html

shared by Gene Ellis on 30 May 12 - No Cached
  • "I was amazed at how quickly and easily this guy was able to open the door," Peter said. The locksmith told him that locks are on doors only to keep honest people honest. One percent of people will always be honest and never steal. Another 1% will always be dishonest and always try to pick your lock and steal your television; locks won't do much to protect you from the hardened thieves, who can get into your house if they really want to. The purpose of locks, the locksmith said, is to protect you from the 98% of mostly honest people who might be tempted to try your door if it had no lock.
  • What we have found, in a nutshell: Everybody has the capacity to be dishonest, and almost everybody cheats—just by a little. Except for a few outliers at the top and bottom, the behavior of almost everyone is driven by two opposing motivations. On the one hand, we want to benefit from cheating and get as much money and glory as possible; on the other hand, we want to view ourselves as honest, honorable people. Sadly, it is this kind of small-scale mass cheating, not the high-profile cases, that is most corrosive to society.
  • It has shown rather conclusively that cheating does not correspond to the traditional, rational model of human behavior—that is, the idea that people simply weigh the benefits (say, money) against the costs (the possibility of getting caught and punished) and act accordingly.
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  • All of this means that, although it is obviously important to pay attention to flagrant misbehaviors, it is probably even more important to discourage the small and more ubiquitous forms of dishonesty—the misbehavior that affects all of us, as both perpetrators and victims.
Gene Ellis

Bringer of Prosperity or Bottomless Pit?: Top German Economists Debate the Euro - SPIEG... - 0 views

www.spiegel.de/...-debate-the-euro-a-685018.html

shared by Gene Ellis on 09 Jul 12 - No Cached
  • No, of course not. Today, we live in a currency zone that, despite everything, is significantly more stable than where the dollar or yen are used. The euro has brought growth and prosperity to Europe.
  • Actually, the euro was a mistake with particularly serious consequences. A monetary union requires its members to pursue the same policies and be similarly productive. The so-called convergence criteria were meant to ensure that this would happen. But -- as the dramatic developments in Greece are now showing -- they didn't.
  • Unfortunately, our fears have become a reality. The monetary union was launched with real self-deception.
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  • The euro was sold to us as a modernization program for Europe, and we were also told that it would push the Community toward stability. But, in reality, it has drifted apart and become a truly unstable entity.
  • The euro was sold to us as a modernization program for Europe, and we were also told that it would push the Community toward stability. But, in reality, it has drifted apart and become a truly unstable entity.
  • There is no reason why the euro should be coming under pressure. The decision to introduce it was smart and far-sighted.
  • thanks to the common currency, it's no longer possible, for example, to wage speculative attacks on individual currencies. This eliminates a key disruptive factor that massively destabilized markets in the past.
  • Still, thanks to the common currency, it's no longer possible, for example, to wage speculative attacks on individual currencies. This eliminates a key disruptive factor that massively destabilized markets in the past.
  • Today, there are two blocs within the monetary union: a strong currency bloc in the north and a weak one in the south.
  • Starbatty: But that's exactly the problem! In the past, exchange rates served as a valve. Individual countries could control their economies by allowing their currencies to gain or lose value.
  • But that's exactly the problem! In the past, exchange rates served as a valve.
  • SPIEGEL: What would happen if the old currencies were reintroduced in the euro zone tomorrow? Bofinger: It would be a catastrophe. The German mark would have to appreciate significantly -- I'd say by 10 percent to 20 percent. Everything that we've worked so hard to attain in terms of competitiveness would vanish overnight.
  • What would happen if the old currencies were reintroduced in the euro zone tomorrow? Bofinger: It would be a catastrophe. The German mark would have to appreciate significantly -- I'd say by 10 percent to 20 percent. Everything that we've worked so hard to attain in terms of competitiveness would vanish overnight.
  • SPIEGEL: Would it have been better if all countries in Europe had kept their own currencies? Starbatty: Yes. A community can't function when it's made up of unequal partners who are supposed to behave as equals. With the euro, Germany has created an artificial competitive advantage for itself, which has enabled us to conquer markets all over the world.
  • Starbatty: Yes. A community can't function when it's made up of unequal partners who are supposed to behave as equals. With the euro, Germany has created an artificial competitive advantage for itself, which has enabled us to conquer markets all over the world.
  • Since 1995, there have been almost no appreciable wage increases in Germany, partly as a result of pressure brought on from increases in subcontracted labor. Politicians have done everything to relieve employers of the burden of paying social security contributions because we fell into this strange panic, believing we weren't globally competitive. With our economic policies, we placed too much of a lopsided emphasis on exports.
  • Politicians have done everything to relieve employers of the burden of paying social security contributions because we fell into this strange panic, believing we weren't globally competitive.
Gene Ellis

PIMCO | - ​​TARGET2: A Channel for Europe's Capital Flight - 0 views

www.pimco.com/...or-Europes-Capital-Flight.aspx

shared by Gene Ellis on 09 Jul 12 - No Cached
  • Its full name is more than a mouthful. Trans-European Automated Real-time Gross Settlement System is better known as TARGET2 for short. It is the behind-the-scene payments system that conveniently enables citizens across the euro area to settle electronic transactions in euro. And at just over €500 billion, its TARGET2 claim on the Eurosystem is also the largest and fastest growing item on the Bundesbank’s balance sheet, as well as a source of much misunderstanding and debate.
  • The allocation of TARGET2 balances among the seventeen national central banks, which together with the ECB make up the Eurosystem, reflects where the market allocates the money created by the ECB. The fact that the Bundesbank has a large TARGET2 claim (asset) on the Eurosystem, while national central banks in southern Europe and Ireland together have an equally large TARGET2 liability, simply reflects that a lot of the ECB’s newly created money has ended up in Germany. Why? Because of capital flight.
  • Since the euro eliminated exchange rate risk among its member states, Germany has invested a substantial portion of its savings in Europe’s current account deficit countries. Some of those savings are now returning home. That’s the capital flight.
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  • The ECB stepped into the void left by foreign investors pulling their savings out of these current account deficit countries by lending their banks more money.
  • When large capital flight to Germany occurred before the euro’s introduction, the deutschemark would appreciate against other European currencies. While pegged against the deutschemark, these exchange rates were still flexible. That flexibility disappeared with the euro. When capital flight occurs today, the Bundesbank effectively ends up with loans to the other national central banks that are reflected in the TARGET2 claims on the Eurosystem. 
  • Debt overhangs persist, growth is mediocre and the governance structure – a common monetary policy without a centralized fiscal policy – is a challenge.
  • The ECB has allowed banks to borrow as much money as they want for up to three years. Indeed, at the end of February banks were borrowing €1.2 trillion from the ECB, twelve times the amount of their required reserves. With so much excess liquidity in the money markets, further capital flight is likely to cause a disproportionable share of this money to end up in Germany
  • Concerned about the stability of the euro, Germany’s savers are shifting their money into real estate. German residential house prices and rents rose by 4.7% last year, the fastest increase since 1993’s reunification boom. So far, Germans are not leveraging to buy houses. Growth in German mortgages is paltry at just 1.2% per annum according to the ECB as of December 2011, but in our view all ingredients for a debt-financed house price boom are there. Distrust in the euro is rising,
  • The ECB’s generous monetary policy will delay the internal devaluation adjustment of the eurozone’s current account deficit countries.
  • Mexico’s current account deficit fell by 5.3% of GDP in 1995, according to Haver Analytics, in the wake of capital flight following the government’s decision to float the peso in 1994, while its recession lasted only one year.
Gene Ellis

European Banks Unprepared for Pandora's Box of Greek Exit (Bloomberg) - 0 views

www.italpreziosi.it/...as-box-of-greek-exit-bloomberg

shared by Gene Ellis on 09 Jul 12 - No Cached
  • Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.
  • Lenders in Germany and France saw an increase in deposits of 217.4 billion euros, or 6.3 percent, in the same period.
  • To prevent contagion, countries in the euro area would have to form a full-fledged political and fiscal union immediately and implement uniform guarantees on bank deposits throughout the region, Thomas Wacker and Juerg de Spindler, economists at Zurich-based UBS, said in a separate note. They said such a response can be ruled out.
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  • Bank of France Governor Christian Noyer told journalists in Paris last week that “whatever happens in Greece” won’t place any French financial institution in difficulty.
  • What’s changed is that banks in the so-called core EU countries of Germany, France and the U.K. used funds from the ECB in December and February to insulate their southern European units against losses should one or more country exit the euro. “If you’re a U.K. lender and you’ve lent 10 billion euros to your Spanish subsidiary and Spain exits, you’re suddenly only going to get paid back in 50 percent devalued pesetas and you’re on the hook for 5 billion euros,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
  • One way multinational banking groups are mitigating that risk is by replacing their own funding lines to subsidiaries in the region with ECB loans. Deutsche Bank, Europe’s biggest bank by assets, tapped “a small amount” of ECB cash to help fund corporate and retail business in continental Europe, where it has sizeable operations in Italy and Spain. BNP Paribas, Europe’s third-biggest bank, used the programs to help fund its Italian unit as it reduces intergroup backing.
  • European banks also have cut their sovereign-debt holdings and exposures to Ireland, Italy, Spain and Portugal.
  • ermany, France and the U.K. reduced exposure to Greece by more than half in the two years through the end of 2011 to $68.2 billion, BIS data show.
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