Tag Archives: economics

The Only Way To Save the EU Is For The UK To Leave It

Brexit-4My Comments: Forget the UK and Europe. There’s a message here that applies to us in the United States and the anger among so many that gives rise to a choice between Donald Trump and Hillary Clinton.

It echoes the comments I’ve made here for years that “It’s economics, stupid!”. A primary driver of deteriorating race relations, of attacks on immigrants, on law enforcement, on the LGBT community, on gun owners, etc., is the fear that many of us are no longer in control of our own destiny. There is a pervasive appeal to try and turn back the clock, to reinvent the past and the conditions that led to a growing middle class in this country.

To the extent that those at the lower end of the economic spectrum, whether white, black or brown, cannot find a way to improve their quality of life, there is going to be stress. And that stress manifests itself as protests in the streets that appear to be focused on racial issues, on law enforcement issues, on immigrants who ‘take away our jobs’, and any number of other real and imagined grievances.

When you’re working 40 plus hours a week and making enough money to adequately feed, clothe and house your family, those grievances become irrelevant. Or at least manageable. They only surface and become a societal nightmare when enough people feel abandoned and disrespected and forgotten. And economics is a fundamental cause behind this drift toward chaos.

I’m not sure Hillary can fix this and I’m quite sure Trump can’t fix this. But I’m going to vote for whomever I think is most likely to force a discussion about the economic realities in this country. This is a long read but if you believe that income inequality is a problem, you need to read all of it.

by Gwynn Guilford on July 15, 2016

Xenophobic. Racist. Jingoistic. Nativist. Parochial. The 52% of British voters who hit the EU eject button might be all of those things. But they were also backing the right horse.

The vote repudiates a vision of Europe that rewards companies at workers’ expense. It’s a rebuke of a government that invests authority in a professional elite insulated from the economic realities of ordinary Europeans. The free flow of goods, services, capital, and people within the EU was supposed to spread prosperity. It hasn’t. Eventually, something big had to break.

While Brexit is certainly big, the fissure beneath it is bigger than Britain, or even Europe. The imbalances of trade, capital, labor, and—above all—savings that lie at the heart of Europe’s current turmoil warp the entire global financial system. Nearly everywhere you look, growth is sputtering because there’s simply too little demand—and far too much debt—to go around. And that’s thanks in no small part to the EU’s wooly-headed policies. However painful it might make the next few months or years, Brexit might ultimately be the wake-up call that prevents the EU from unleashing another global financial crisis, and condemning the world to decades of feeble growth.

To understand why things have gotten to this point, we have to examine the fundamental flaws in the EU’s design that are largely responsible for these distortions.

CONTINUE-READING

Do Record Low Yields And Record High Stocks Spell Trouble?

roller coaster2My Comments: This week I’ve focused my posts on what other people think is likely to happen to your money if you have it invested in stocks and bonds. It’s pretty obvious that no one has a clue.

Until a lot of stuff gets sorted out, my recommendation is to go to cash and sit on the sidelines for a few weeks or more. I think the chances of losing money right now are higher than the chances of making money, which is what most of us are trying to do.

Of course, if you wait several weeks, and nothing bad happens, and you jump back in, be assured that within a few days, if not hours, the bottom will fall out. It’s your call.

Bryan Rich Jul 13, 2016

Earlier this week we talked about the disconnect between yields and stocks.

The move lower in German yields, given the contagion risk in Europe that people have feared from Brexit, as we’ve discussed, has also dragged down U.S. yields. With that, the U.S. 10 year yield, post-Brexit, has traded to new record lows.

So we have record highs in U.S. stocks, and record lows in U.S. yields.

For people looking for the next reason to be worried, this is where they are hanging their hats. But is the uneasiness associated with this divergence warranted?

Let’s take a look at the chart…

Now, you can see from the chart, we recently breached the record lows of 2012 in U.S. yields (the green line).

For a little back-story: Back in 2012, Europe was on the verge of sovereign debt defaults that would have blown up the euro and the European Union. The ECB stepped in and promised to do “whatever it takes” to preserve the euro, which included the threat of buying unlimited Italian and Spanish government bonds (the real threatening spot in the crisis). That sent bond market speculators, which had been running up the yields in Spanish and Italian debt to unsustainable levels, swiftly hitting the exit doors. At the height of that threat, global capital was pouring into U.S. government debt, which sent the 10 year yield to record lows.

Still, U.S. stocks at the time were in solid shape, UP nearly 8% on the year in the face of record low bond yields.

What happened when the ECB stepped in and curtailed the threat? U.S. yields bounced aggressively. And U.S. stocks went even more sharply higher, finishing the year up 16%. In fact, the U.S. 10 year yield more than doubled (to as high as 3%) over the next seventeen months, and the S&P 500 added to 2012 gains, going another 32% higher in 2013.

So we have a very similar scenario now — and the drag on U.S. yields is, again, Europe and the threat to the euro and European Union.

And again, U.S. yields have hit new record lows, and stocks are putting up a solid year, as of July (the same month the tide turned in 2012).

We would argue, for the many reasons we’ve discussed in our daily notes, that stocks are in the sweet spot. As long as a global economic shock doesn’t occur, which is what central banks have proven very capable of managing over the past seven years, U.S. stocks should continue to benefit from the incentives of record low interest rates. And when market rates/yields rise, it’s only because the clouds of uncertainty clear. That’s very good for stocks too.

A DIVIDED AMERICA: Rural vs. Urban

My Comments: Economic reality drives most lives today. It shapes our ideas about politics, about family, about national security, and our fears. Almost all of us agree that life is better with more money than with less money.

So where you live has a huge influence on your economic reality, and as a result, how you expect and hope your life and that of your loved ones will play out. What follows does not provide a definitive insight for us, but it does help explain a lot of the conflict we are experiencing.

By NICHOLAS RICCARDI , July 5, 2016

ROCKY FORD, Colo. (AP) — Peggy Sheahan’s rural Otero County is steadily losing population. Middle-class jobs vanished years ago as pickling and packing plants closed. She’s had to cut back on her business repairing broken windshields to help nurse her husband after a series of farm accidents, culminating in his breaking his neck falling from a bale of hay.

She collects newspaper clippings on stabbings and killings in the area — one woman’s body was found in a field near Sheahan’s farm — as heroin use rises. “We are so worse off, it’s unbelievable,” said Sheahan, 65, who plans to vote for Donald Trump.

In Denver, 175 miles to the northwest, things are going better for Andrea Pacheco. Thanks to the Supreme Court, the 36-year-old could finally marry her partner, Jen Winters, in June. After months navigating Denver’s superheated housing market, they snapped up a bungalow at the edge of town. Pacheco supports Hillary Clinton to build on President Barack Obama’s legacy.

“There’s a lot of positive things that happened — obviously the upswing in the economy,” said Pacheco, a 36-year-old fundraiser for nonprofits. “We were in a pretty rough place when he started out and I don’t know anyone who isn’t better off eight years later.”

There are few divides in the United States greater than that between rural and urban places. Town and country represent not just the poles of the nation’s two political parties, but different economic realities that are transforming the 2016 presidential election.

Cities are trending Democratic and are on an upward economic shift, with growing populations and rising property values. Rural areas are increasingly Republican, shedding population and suffering economically as commodity and energy prices drop.

“The urban-rural split this year is larger than anything we’ve ever seen,” said Scott Reed, a political strategist for the U.S. Chamber of Commerce who has advised previous GOP campaigns.

While plenty of cities still struggle with endemic poverty and joblessness, a report from the Washington-based Economic Innovation Group found that half of new business growth in the past four years has been concentrated in 20 populous counties.

“More and more economic activity is happening in cities as we move to higher-value services playing a bigger role in the economy,” said Ross Devol, chief researcher at the Milken Institute, an independent economic think tank. “As economies advance, economic activity just tends to concentrate in fewer and fewer places.”

That concentration has brought a whole host of new urban problems — rising inequality, traffic and worries that the basics of city life are increasingly out of the reach of the middle class. Those fears inform Democrats’ emphasis on income inequality, wages and pay equity in contrast to the general anxiety about economic collapse that comes from Republicans who represent an increasingly desperate rural America.

These two different economic worlds are writ large in Colorado. It is among the states with the greatest economic gap between urban and rural areas, according to an Associated Press review of EIG data.

The state’s sprawling metropolitan areas from Denver to Colorado Springs is known as the Front Range. As it has grown to include nearly 90 percent of the state’s population, it has trended Democratic. Rural areas, which have become more Republican, resent Denver’s clout. In 2013, a rural swath of the state unsuccessfully tried to secede to create its own state of Northern Colorado after the Democratic-controlled statehouse passed new gun control measures and required rural areas to use renewably generated electricity.

In Denver, City Councilman Rafael Espinoza elected to Denver’s last year as part of a group of candidates questioning the value of Denver’s runaway growth. Espinoza has seen his neighborhood of modest bungalows occupied by largely Latino families transformed into a collection of condominiums housing affluent professionals.

“Money just drives the discussion. In the presidential, Bernie Sanders was my guy for that one reason,” Espinoza said.

In contrast, Bill Hendren is desperate for money. He has about $4 in coins in a plastic cup he keeps in the cottage on a small farm where he lives, rent-free. Hendren’s truck was stolen 18 months ago and he was unable to travel to perform the odd jobs in Otero County that kept him afloat. He’s now functionally homeless and a Trump backer.

“I don’t ever see a president caring about anyone who’s living paycheck to paycheck — if they did they’d have put the construction people back to work,” Hendren said. “Trump’s got the elite scared because he doesn’t belong to them.”

If bad luck and geography conspired to impoverish Bill Hendren, it’s an excess of money that’s to blame for Robin Sam’s plight. Sam, 62, left one apartment counting on moving into another one being built in the rapidly-gentrifying and historically black neighborhood where he grew up. But that facility raised its rent over the threshold of Sam’s $1,055 Section 8 voucher, and he’s been living in a homeless shelter all year, unable to find a new place in Denver’s fiercely competitive housing market.

“I feel like I’m being pushed out,” said Sam, who is black. He recalls houses and apartments being barred to blacks in his youth decades ago, but senses something else at play now.

“It’s money — and money changes everything,” he said

The Economy Is Adding Jobs, But The Divide Between The ‘Haves’ and ‘Have-nots’ Is Bigger Than Ever

My Comments: I’ve been railing for some time about the income divide between the ‘haves’ and the ‘have nots’. If a remedy is not found, my fear is that my grandchildren, perhaps my children, will see rioting in the streets. It’s increasingly profound, and it’s contributing greatly to the political divide in this country.

It’s more obviously seen in urban communities where within a short distance, you can see poverty vs plenty. Yes, it’s not as bad here in Gainesville as it is in Rio de Janeiro, but it exists. If you live here, and are on the low end of the economic spectrum, how do you escape? Do you vote for Trump with the expectation that he hears your pain and will do something about it? Don’t hold your breath.

I doubt Hillary hears their pain either, but as usual, I’m likely to vote for lesser of two evils.

Chloe Pfeiffer, July 6, 2016

There’s a new 99 percent.

A new report from Georgetown University’s Center on Education and the Workforce says that 11.5 million of the 11.6 million jobs in the US created during the post-2008 recovery went to workers with at least some college education. Moreover, 73% went to workers with a bachelor’s degree or higher.

According to The Wall Street Journal, that makes this year the first time in which college-educated workers outnumber those with a high diploma or less.

College-educated workers (those with at least a bachelor’s degree) now make up 36% of the workforce, while those with a high-school diploma or less dropped to 34%, down 5 percentage points from 2007. The other 30% of workers are those with an associate’s degree or some college education.

“Jobs are back,” the Georgetown report said, but “they are not the same jobs lost during the recession. The Great Recession decimated low-skill blue-collar and clerical jobs, whereas the recovery added primarily high-skill managerial and professional jobs.”

Jobs filled by people with a high-school education or less fell by 5.6 million from December 2007 to January 2010, and just 80,000 have since been added. On the other hand, those filled by people with at least a bachelor’s degree increased by 187,000 during the recession and then by 8.4 million during the recovery. And those tend to be the “good jobs,” the report said — jobs that pay more than $53,000 a year for full-time workers and include some benefits.

This all adds to the economic divide between the “College Haves and Have-Nots,” as the report is titled. Structural changes have led to “a clear shift in job creation” toward industries that require workers with postsecondary educational attainment — industries like healthcare, consulting and business, financial services, and government. These industries accounted for 28% of the workforce in 1946, the report says; they now account for 46%.

This shift, however, has been a long time coming. The authors of the report write that “college access and success have been the defining factors in the growing economic divide in America since the early 1980s.” It is not a new phenomenon, and it is not borne of the Great Recession.

But the recession did strengthen and accelerate the economic divide. Facing a bleak job market, workers with a college education, or some college education, took the middle- and low-skill jobs that formerly went to high-school graduates, Anthony Carnevale, one of the report’s authors, told The Journal.

“If you’re running a pizza joint and you’re going to hire somebody … then you’re looking for a more highly skilled worker than you were looking for 20 or 25 years ago,” he told The Journal. “It’s very clear there’s been some bumping effect.”

Brexit: Why Most Commentaries Miss The Point

Brexit-4My Comments: I found this a couple of days ago and it really helped me understand what happened in Great Britain the other day. If Brexit concerns you, this might help. It appeared in a news feed I follow written by a Tom Dispatch, if I have his name correct.

06/26/2016

Economist Robert Kuttner has a particularly judicious summary of and analysis of the Brexit decision, what lay behind it, and what it means. I’ve reproduced the whole essay below and recommend it for everyone puzzled by what just happened and what to make of it. Tom

What was the narrow British vote to leave the European Union really about? In recent days, you have read commentaries with variations on the following themes, ad nauseam. All of them contain pieces of the truth, but all miss the basic point:

Irrational Racism. This vote was a mostly racist reaction on the part of Brits who resented dark skinned foreigners in their midst, and mistakenly blamed the E.U. Britain actually has more control over its borders than most E.U. members, since London never signed the 1985 Schengen Agreement, which got rid of border controls for travelers throughout most of the Union. Before entering Britain, Europeans must still go through passport control, just like Syrians or Americans.

Scapegoating the E.U. for Economic Frustrations. Britain actually has a better deal than most E.U. nations. For starters, it retained its own currency, and controls its own monetary and fiscal policy. But as a member of the E.U., Britain does get to send tariff-free exports to the continent and London operates as a major European financial center. All of this now at risk.

The E.U. Had It Coming. Brussels is a remote, unaccountable bureaucracy, imposing regulations beyond democratic control. The vote, rightly or wrongly, was a yearning for lost national sovereignty.

Rejecting Liberal Internationalism. Britain has grown at a good clip since joining the E.U. in 1973. Globalization is here to stay. The people who voted for Brexit, are badly informed flat-earth types, failed to understand that they were shooting themselves in the foot.

What’s wrong with these commentaries? All fail to grasp that there is more than one brand of liberal internationalism. The kind represented by the E.U. since the 1990s (and Thatcherism since the late 1970s) has been operated largely by and for financial elites.

When the original institutions that later became the E.U. were created in the 1940s and 1950s, the international system was designed on the ashes of depression and war to rebuild an economy of full employment and broad based prosperity. The system worked remarkably well.

In the 1980s, as a backlash against the dislocations of the 1970s, Margaret Thatcher came to power in Britain (and Ronald Reagan in the US). Their policies returned to a dog-eat-dog brand of capitalism that benefited elites and hurt ordinary people. By the 1990s, when the European Economic Community became a more tightly knit European Union, it too became an agent of neo-liberalism.

Policies of deregulation ended in the financial collapse of 2008. The austerity cure, enforced the gnomes of Brussels and Frankfurt and Berlin, is in many ways worse than the disease.

Rising mass discontent has failed to dethrone the elites responsible for these policies, but it has resulted in loss of faith in institutions. The one percent won the policies but lost the people.

So, yes, the Brits who voted for Brexit got a lot of facts and details wrong. And Britain will probably be worse off as a result. But they did grasp that the larger economic system is serving elites and is not serving them.

The tragedy is that we are further away from a reformed EU than ever. A progressive EU, more in the spirit of 1944, is not on the menu. The exit of Britain will give even more power to Angela Merkel’s Germany, architect and enforcer of austerity.

The rest of Europe will become more like Greece economically and more like the British rightwing politically. there will be more far-right populist movements for other nations to quit the EU. This has already begun in France and the Netherlands, two of the founding nations of the European Community — and ones that also benefit, on balance, from the EU.

What about race? Didn’t race play a big role in this vote. Is surely did — and not just a backlash against just recent influx of refugees and economic migrants. Since the 1950s, when Britain rebranded its empire as the Commonwealth, Britain has had a relatively liberal immigration policy for its former colonies—one part carrot to promote allegiance, one part guilty conscience.

In the 1960s, the rightwing Tory Enoch Powell was already campaigning against immigrants and slogans appeared, “If you want a Ni—-r for a neighbour, Vote Labour.” By 2001, fifteen years ago, Britain was already 8 percent nonwhite. As traditional industry declined and living standards crashed, non-white populations increased, creating resentments against both economic misfortune and racial change. But the history of rightwing populism is invariably a mix of economic factors and nativist ones. In the 1960s, when Europe had full employment, there was little backlash against foreign “guest-workers.” Anti-Semitism was never far below the surface in Europe, but it took the German economic collapse of the 1920s and early 1930s to produce Hitler.

Rightwing revolts are always substantially irrational, as was the vote for Brexit. But when downwardly mobile Brits grasp that the EU and the larger model of neo-liberalism aren’t exactly on their side, they are grasping a truth.

What makes this vote so tragic is the absence of enlightened leadership, either in Britain or on the continent, to propose something better. Prime Minister David Cameron, who proposed the reckless gamble of a referendum as a tactical feint to paper over an intra-party schism, may now be responsible for the dissolution of two unions — not just the EU, but the UK, as Scotland secedes. He will be remembered as the worst British prime minister ever, a near-tie with Neville Chamberlain. The Labour leader, Jeremy Corbyn, who said he opposed Brexit but refused to actively campaign against it, was not much better.

Britain’s two major parties are now both in disarray. I can think of one possible silver lining. The referendum was not legally binding, and Article 50 of the Lisbon Treaty — withdrawal — still needs to be voted by the House of Commons. And a majority of British M.P.’s oppose Brexit.

Now that the implications of Brexit are clearer, including the likely breakup of the United Kingdom itself, it’s possible that the Commons could refuse to approve Article 50. Rather, Britain could have an early election, and maybe even a partisan realignment, with one party pledged to keep Britain in the EU but to modernize the EU to better serve regular Brits, and the other party standing for narrow nationalism. My bet is that the modernizers would win.

Absent this sort of recasting of politics and political choices, we are in for a grim era in which ultra nationalists and neo-fascists keep gaining ground.

Robert Kuttner is co-editor of The American Prospect and professor at Brandeis University’s Heller School. His latest book is Debtors’ Prison: The Politics of Austerity Versus Possibility.

Young People Just Got Brexited by Their Parents

CharityMy Comments: As someone with strong personal ties to Britain and the United Kingdom (I was born there in 1941), the vote to leave is profoundly shocking. One of my grandfathers and my favorite uncle served in the British Army during the Great War. They somehow came home alive. My father and his brother fought for Britain and its allies during the next global war, called World War II. Both somehow survived. But tens of millions of people didn’t.

Following these two conflicts, both of which engulfed the same generation, Winston Churchill, a leader of profound abilities, pushed hard to eliminate the chance of another such conflict in Europe by promoting the idea of a United States of Europe. It slowly happened and Britain became a member state in 1975.

This whole history, some of which engulfed me as a child, has been repudiated. Sure, it had flaws, but the premise was and is a valid one, and now Britain has told the world, and more specifically, the countries of Europe, that the idea of a united Europe is full of shit.

Granted, the rules are perhaps archaic, and are monitored by a bunch of bureaucratic goons, but the consequences of rejection are hard to fathom. Personally, by the time it all unfolds and either more armed conflicts or economic chaos is resolved, I’ll probably be dead. Which means I won’t have to worry about the consequences. But my kids and grandchildren will, which is one major reason why I thought the European Union, with Britain a full fledged member, was a good idea.

Here’s a link to an article that appeared this morning that articulates much of this far better than I could hope to. If you are looking for a way to wrap your brain around this profound global upheaval, check it out. It was written by a Henry Grabar, and appeared on a news feed I subscribe to on June 24, 2015.
CONTINUE-READING

The End Of The Fossil Fuel Age As We Know It

oil productionMy Comments: I grew up in WW2 England, in my uncle’s house, and he had a car in the garage. My father was in the Royal Tank Regiment, doing what soldiers do in a war. My life as a small boy was relatively normal. Petrol (gasoline) was rationed but I recall going for a drive into the country, miles from our village, and stopping at a farm where we purchased eggs. They too were rationed but my uncle had a ‘friend’ who, for the right price, provided as many as you wanted. We had a car, some petrol, but no refrigerator.

Changes are happening, there is a new normal, and there will be another new normal in the future.

BEC CREW 16 JUN 2016

Fossil fuels are holding on, but end of their reign is nigh, says a new report from Bloomberg New Energy Finance, which predicts that wind and solar will be cheaper than coal and gas generators by 2027, and electric vehicles could make up 25 percent of the global car fleet by 2040.

The peak year for coal, gas, and oil looks to be 2025, and then it’s all downhill from there. For big oil guys, at least. “You can’t fight the future,” says lead researcher, Seb Henbest. “The economics are increasingly locked in.”

Released on Monday, Bloomberg’s New Energy Outlook report has found that US$11.4 trillion will be invested in new energy sources over the next 25 years, and two thirds of that will go towards renewables, particularly wind and solar.

Any new coal plants will mostly be cropping up in India and other emerging markets in Asia.

“Cheaper coal and cheaper gas will not derail the transformation and decarbonisation of the world’s power systems. By 2040, zero-emission energy sources will make up 60 percent of installed capacity.

Wind and solar will account for 64 percent of the 8.6TW [1 Terawatt = 1,000 Gigawatts] of new power generating capacity added worldwide over the next 25 years, and for almost 60 percent of the $11.4 trillion invested.”

The report predicts that coal, gas, and oil will peak by 2025, and will hit its final decline even sooner than that, concluding that, “coal and gas will begin their terminal decline in less than a decade”.

By 2027, the real tipping point will occur, when fossil fuels will be well and truly on the decline and renewables have been established long enough that they’ll likely be generating energy more cheaply than existing coal, gas, and oil refineries. And there’s nothing quite like a cheaper price to accelerate an industry even further.

Let’s just take a moment and think about that for a second. For the first time since humanity fell in love with producing crazy amounts of energy to give us such luxuries as cars, electricity, industrial-level food production, and overseas vacations, we’ve figured out how to do it without stomping all over the environment in the process.

We’re not there yet, but the writing is well and truly on the wall, and that’s a pretty phenomenal achievement by researchers all over the world who have been working their butts off to make renewable technologies viable on a massive scale – even more viable than fossil fuels.

But here’s the bad news. For as promising as the rise of renewables and the fall of fossil fuels is, Bloomberg’s report says their projections won’t be enough to limit the global warming increase of 2 degrees Celsius (3.6 degrees Fahrenheit) that was targeted by the 2015 Paris Climate Conference.

“Some US$7.8 trillion will be invested globally in renewables between 2016 and 2040, two-thirds of the investment in all power generating capacity, but it would require trillions more to bring world emissions onto a track compatible with the United Nations 2 degrees Celsius climate target,” says Henbest.

According to Andrew Freedman at Mashable, to meet what everyone agreed needed to happen at the Paris Conference, an additional US$5.3 trillion in new clean energy investment would need to be invested worldwide in the next 25 years.

Below are some more insights from the report:
• Coal and gas prices will stay low.
• Wind and solar costs fall sharply.
• An electric car boom is expected, and will likely represent 35 percent of worldwide new light-duty vehicle sales in 2040 – which is 90 times the 2015 figure – and 25 percent of the global car fleet overall.
• Small-scale battery storage will become a US$250 billion market to enable more residential and commercial solar systems.
• India, not China, will be the key to the future global emissions trend, with its electricity demand forecast to grow 3.8 times between 2016 and 2040.
• Renewables will dominate in Europe, and overtake gas in the US.

To be clear, these are just very educated predictions based on government and industry spending, so none of this is set in stone. But experts have been predicting the end of the fossil fuel era for years now, and we’re probably going to see it within our lifetime. What an awesome thing to look forward to.