Unknown Goodyear service station, San Francisco Sep 14 1932
“They keep saying if Syriza wins we’ll be like North Korea or Venezuela. The politicians who tried that line are making a laughing stock of themselves.”
There’s pizzazz tonight at the election rally of the Greek conservatives. There is a lot of money riding on their victory. But right now it looks like the election is slipping away from Prime Minister Antonis Samaras. Two polls last night put Syriza ahead – one, by the usually authoritative Mega channel, has the far left on 32.5% against New Democracy’s 26.5%. More polls today tell the same story: a widening Syriza lead. If Greece does elect Alexis Tsipras as the first far-left prime minister in Europe since the 1930s, then the place where it’s lost and won will not be Athens. Syriza is making inroads into towns and provinces that have traditionally voted right. In the gulf of Corinth there are a whole string of mountain villages that have traditionally been known as “castles” for the two main parties – ND and the centre-left Pasok. But Pasok has collapsed, and even some conservative voters are swinging over to support the left.
In Assos, a sleepy farming village Giannis Tsogkas, a grape farmer aged 56, explains why the place has swung towards the left. “Two-thirds of the land here has been mortgaged to the banks. Now we can’t pay our debts and we’re in constant fear of repossession. These are the worst times we’ve ever seen. We’re at a point where we can’t afford anything. “We used to go to the supermarket three times a week, now we only go once every two weeks – and we count every single cent we spend. It never used be like this: we had money, we were.. We produced, we sold, we had an income.” There’ve been a string of suicides, he tells me. And not just because of austerity. Every year, he alleges, the merchants who buy their grapes refuse to pay, or go bust. The legal system is so decrepit that it cannot help them. For the farmers in Assos the problems of falling incomes and a political system they see as corrupt merge into one.
“They shoved us into austerity with the IMF. The small farmer will die, that’s it. People here keep committing suicide. So we looked for someone to protect us, and we found it in Syriza.” Ten years ago Syriza got a grand total of 121 votes in the village – just over 2%. In the June 2012 general election it came second, with 22%. Last year, in the Euro elections it topped the polls with 27% – and Mr Tsogkas believes it will win easily on Sunday. It’s anger like this that has seen poll swings to Syriza in rural areas, suburban communities, and even regions like Thessaly that were once strongly right-wing. The government, which had relied on a fear strategy to stop Syriza, seems bereft of strategy. In the local coffee shop in Assos we meet other farmers, once staunch supporters of the centrist Pasok party. “They keep saying if Syriza wins we’ll be like North Korea or Venezuela. The politicians who tried that line are making a laughing stock of themselves. I don’t care who governs us, I care about Greece,” one man says angrily.
Greece’s best and brightest come home to save the nation.
Wearing suit pants and a jacket, Costas Lapavitsas stood Wednesday afternoon on the floor of a steel-fabricating shop here and addressed a few dozen workers and small-business owners who smoked while sitting in plastic chairs. “I am not a career politician,” he began. Indeed. Mr. Lapavitsas’s political career is only a few weeks old. In Greece’s elections Sunday, he is a parliamentary candidate for the leftist opposition party Syriza, which leads Prime Minister Antonis Samaras ’s conservative party in the polls and could roil politics throughout Europe if it wins. For more than 20 years, the 54-year-old Mr. Lapavitsas has taught economics at the University of London’s School of Oriental and African Studies. Now, he is part of the cadre of academics-turned-politicians forging Syriza’s economic thinking. European economic orthodoxy, led by Germany, has fought Greece’s debt crisis with painful austerity—public-spending cuts and tax hikes—and other strict reforms.
Syriza’s rise is the most potent challenge yet to that orthodoxy. If Syriza wins, it could embolden left-wing parties in other countries, especially Spain, where political tensions also are boiling. It could even result in a rift with Germany that ruptures the euro. The economic plan advanced by Mr. Lapavitsas and other professors aligned with Syriza is rooted in the core principles of debt forgiveness and higher government spending, which Germany has rejected. “We need to renegotiate the logic,” says Yanis Varoufakis, a visiting professor at the University of Texas at Austin until a few days ago. He describes himself as a “libertarian Marxist” and has been recruited by Syriza to run for a seat in Greece’s parliament. A few years ago, Syriza was a fringe coalition of leftists. It jumped into the political mainstream in 2012 because of populist fervor and the party’s charismatic young leader, Alexis Tsipras. But a muddy economic message left Syriza in second place—and out of power.
It has honed its focus since then, and Mr. Lapavitsas describes the party’s platform as “a Keynesian program with redistribution attached, with some Marxist view of the world.” He adds: “We are not ashamed of that.” In the tradition of John Maynard Keynes, Syriza advocates public spending to reignite economic growth. Greece can afford to spend more if some of its debt is forgiven by other countries. Nikolaos Chountis, a Syriza candidate in Athens, ticks off the party’s spending priorities: food and electricity subsidies for impoverished households, a pension boost for the poorest retirees, a hike in the minimum wage and tax cuts for low earners. “The legislation is ready..” Since 2010, Greece’s economic policy has largely been dictated by the “troika” of technocrats appointed by Europe and the International Monetary Fund to supervise Greece’s €240 billion ($280 billion) bailout. The troika wields a memorandum that minutely details what Greece must do in return for the rescue. Section 188.8.131.52.ii. commits Greece to reviewing customs procedures for canned peaches and four other products.
Economist Leonidas Vatikiotis, previously a European Parliament candidate with Greece’s Antarsya political party, shares his take on the upcoming elections in Greece, the economic proposals put forth by main opposition party Syriza, and the need, in his view, for Greece to depart from the eurozone. Michael Nevradakis: We left off before the holidays in the midst of the election for a new president of the Hellenic Republic, and we are now in the new year and in the midst of a snap parliamentary election in Greece. There are many government politicians, pro-government analysts and Greek and international media outlets who keep talking about the irresponsible, as they characterize it, stance of the opposition in not voting in favor of the government’s candidate for the presidency of the republic and for not averting these snap elections. How do you view this issue?
Leonidas Vatikiotis: To characterize as irresponsible a position adopted by several political parties that are represented in parliament, simply because they exercised their constitutional right not to vote for the government’s candidate for the presidency, is an insult to even the most basic democratic ideals. Syriza, the Communist Party of Greece, and the Independent Greeks exercised their constitutional right, and if we want to get to the heart of the matter, what Greek society as well as the political parties in parliament learned from this is that the government did not wish to simply extend its term in office. We were told that the government wished, through the election of its candidate for the presidency of the republic, Stavros Dimas, to extend its hold on power and complete its full four-year term. However, what the government of Antonis Samaras and Evangelos Venizelos also wanted was, essentially, the acceptance by Greek society of a new, and more severe, memorandum agreement.
“The troika leaked to the press that Greece still needed to ratify over 1,000 measures which it had agreed to with the troika but which had not yet been passed legislatively through the Greek parliament.” We should note where the negotiations between the Greek government and its lenders left off, at the Eurogroup meeting on December 8. At that time, the eurozone refused to continue negotiations to complete its review of the Greek economy, pending the election of a new government in Greece. On December 8, the negotiation cycle, which began during the summer of 2014, came to a close, and this was a period during which the government and the prime minister himself, Antonis Samaras, proclaimed that Greece had emerged from the crisis, that the memorandum agreements were a thing of the past, and that better days were ahead, that troika oversight of the Greek economy, which had been in place since May of 2010, would cease.
The intentions of Greece’s lenders, however, were quite different: The troika leaked to the press that Greece still needed to ratify over 1,000 measures which it had agreed to with the troika but which had not yet been passed legislatively through the Greek parliament. This was the point where the Samaras-Venizelos government did not continue its negotiations, knowing that there was no way that it could fulfill the demands of the troika and pass these measures through parliament.
Nice detail: “..he suggested that he would negotiate with representatives of European Union institutions, rather than troika officials.”
SYRIZA leader Alexis Tsipras will aim to conclude an agreement with Greece’s international lenders by the summer if his party is able to form a government after Sunday’s elections. In a televised news conference Friday, Tsipras sketched out his plans for government and revealed that he had no specific plans for meeting German Chancellor Angela Merkel if he becomes prime minister. The SYRIZA chief suggested that his government would enter negotiations with Greece’s eurozone partners after being elected and would aim to wrap up talks on the way forward in the relationship between the two sides by July or August, when Greece has a series of debt obligations to meet.
Tsipras said that he is aiming to achieve a “sustainable, mutually acceptable solution for Greece and for Europe.” However, he suggested that he would negotiate with representatives of European Union institutions, rather than troika officials. “Austerity is not enshrined in European treaties,” said Tsipras, adding that his government would recognize Greece’s “institutional obligations” toward the EU but not the “political commitments”» made by the outgoing government. When asked where he would make his first official trip to if elected prime minister, Tsipras said it would be Cyprus. He added that he would not seek direct talks with Merkel. “I do not recognize Mrs Merkel as being any different from the other leaders,” he said. “She is one of 28 so I will not rush to meet her.”
The Greeks know what that is worth. Germany keeps saying: ‘Better do what we tell you to do’.
Germany’s finance minister Wolfgang Schaueble denied that the country has started preparations for a Greece exit from the euro zone, ahead of a key election in the turbulent Mediterranean country on Sunday. “We did whatever could be done to support Greece in difficult times, again and again,” Schaueble told a CNBC panel at the World Economic Forum in Davos, Switzerland. “We had to convince the IMF to make very extraordinary conditions so that we could support this,” he said of the frantic discussions between International Monetary fund and European Union authorities around the $147 billion bailout of Greece in 2010. “There were endless discussions.”
Now, talk among commentators and politicians in Germany suggests the government is more open to the idea of a Greek exit from the single currency region – even though Chancellor Angela Merkel and other senior politicians still want it to stay. “We don’t need any problems,” Schaueble said. “We will wait on the elections in Greece.” The possibility of a Greek exit from the euro zone, if left-wing Syriza, which campaigns on an anti-austerity platform, gains power next week, is only one of many potential political events which could cause turmoil in markets this year. “Most of the disturbing things today that can go wrong are political,” legendary investor George Soros warned in Davos.
How many Americans do you think see this Shilling’s way?
U.S. housing activity remains weak despite six years of federal government aid, strong interest from overseas buyers, rock-bottom interest rates and massive purchases of mortgage bonds by the Federal Reserve. Does this mean housing may never spring back to its pre-recession levels? Many signs point to yes. Don’t blame the Chinese, who are showing an abundance of interest. Their share of foreign purchases leaped to 16% in the year ending March 2014, from 5% in 2007. They paid a median price of $523,148, higher than any other nationality and more than double the $199,575 median price of all houses sold. The value of home sales to all foreigners rose 35% last year to $92 billion, up more than 50% since 2007 and accounting for 7% of all existing home sales. Foreigners view U.S. homes as safe investments and U.S. schools as good places to teach their children English.
But such robust foreign purchases can’t overcome what ails the U.S. housing market. Activity is weak even now that banks are no longer tightening mortgage-lending standards, according to a Fed survey. Banks are searching for new lines of business since the Dodd-Frank reform law and regulations are depriving them of revenue from proprietary trading, derivative origination and investing and off-balance sheet activities. The end of the mortgage refinancing surge has added to the pressure on banks. By necessity, banks remain selective about the mortgages they’ll underwrite, having paid huge penalties for originating and selling bad mortgages pre-crisis. Banks are also being careful to avoid the high cost of mortgage defaults now that they must repurchase loans with underwriting defects. The result can be seen in foreclosure data: In the third quarter, banks began foreclosure proceedings on only 0.4% of mortgages, far below the 1.4% level in the peak of the financial crisis.
Fed Chair Janet Yellen worries about the negative effects of tight credit standards on housing. While she admits that lenders should have raised their standards earlier, “any borrower without a pretty positive credit rating finds it awfully hard to get a mortgage,” she said in July. Even Ben Bernanke, her predecessor, was turned down when he tried to refinance his mortgage. With the federal funds rate at essentially zero and the Fed having ended its purchases of mortgage securities, the central bank can’t do much to help housing now. The Barack Obama Administration, however, is reversing some of the government post-crisis tightening of lending standards. Fannie Mae and Freddie Mac, which remain under government control and now guarantee about 90% of all new mortgages, have reduced the underwriting standards on packages of mortgages they guarantee, including allowing loans with as little as 3% down payments.
“..central bankers cannot fix very much..”
The Swiss National Bank (SNB) failed to ‘fix’ the exchange rate between the Swiss Franc and the Euro. The simple lesson which investors must learn from this is – central bankers cannot fix very much. The inability of the Swiss National Bank to ‘fix’ the exchange rate will come to be seen as the end of the bull market in the omnipotence of central bankers. Think for just a moment of all the key variables which you believe are ‘fixed’ (made firm), fixed (repaired) , fixed (circumvention of the laws of supply and demand) or fixed (dosed with monetary narcotics) by central bankers. These various fixes by central bankers across the world can also fail. That process of failure began in Bern and Zurich early one morning on January 15th 2015.
As the OED entries for the word ‘fix’ make clear, the failure of the SNB to fix the exchange rate was on many levels. It failed to ‘ fix’ the exchange rate in terms of making the Swiss Franc ‘firm’ to the Euro and hence ‘deprive it of volatility or fluidity’. It failed to ‘fix’ the exchange rate as the ‘laws‘ of supply and demand were ultimately not circumvented. For many, particularly Swiss exporters, the material appreciation of the Swiss Franc on the international exchanges will not ‘fix’ the currency in terms of making it ‘ready for use’. Finally, the adjustment in the exchange rate removes, rather than administers, the dose of monetary ‘narcotic’ in the form of excess growth in Swiss Franc liquidity and cheap funding for speculators in Euro. The monetary ‘fix’, which was the by-product of fixing the exchange rate, has ceased to be and the price of equities has collapsed.
“..the weaker euro reduces the purchasing power of the Europeans and therefore their ability to import from Asia..”
The ECB bold bond-buying scheme is set to provide a temporary boost to Asian equities but is no game changer for the region’s markets, say analysts. After months of speculation, the ECB on Thursday pledged to buy €60 billion ($70 billion) worth of private and public bonds each month until September 2016 in a program that could amount to €1.1 trillion. This was more aggressive than the €50 billion in monthly asset purchases analysts expected. Investors applauded the move, sending European and U.S. equities higher overnight.The positive sentiment carried over into the Asian trading session on Wednesday, with South Korea’s KOSPI rising 0.8% and Indonesia’s Jakarta Composite up 1%. But, analysts expect the lift will be short-lived.”I doubt the increased liquidity will be driving a lot of fund inflows into Asia [over the medium-term],” Stephen Sheung at SHK Private told CNBC.
“A lot of that amount of money will likely be stuck in European banking system rather than flowing out,” he said.Funds that do flow out are likely to go into the U.S. or U.S. dollar assets instead of Asian stocks, Sheung said, citing deteriorating growth in the region.”We have growth problems here in Asia, U.S. economic conditions are on a much more stable footing, and there are prospects for further U.S. dollar appreciation,” he said. Nicholas Ferres, investment director at Eastspring Investments points out that the ECB’s action may have negative implications for European demand for Asian goods, due to the weakening euro. This does not bode well for Asian exporters. “[On the negative side], the weaker euro reduces the purchasing power of the Europeans and therefore their ability to import from Asia,” Ferres said.
The euro sank to a more than 11-year low against the dollar and a three-month low against the yen on Thursday following the ECB’s announcement.”On the positive side, it will likely improve risk perceptions and risk appetite and that might help cheap cyclical stocks rally,” he said.More than liquidity finding its way into Asia markets, Sheung says the ECB action is likely to drive Asian intuitional investors and large corporations to make investments in Europe.”With liquidly abundant and the euro cheaper, it makes investments more attractive,” he said.”Asian investors won’t necessarily look at equities or debt but more at direct investments in projects or infrastructure. This has been a hot topic for the past two to three quarters.”
“Within the past four weeks, drillers idled half of their rigs in the state..”
Little is going right for California’s oil industry. Turns out the state’s shale formation holds less promise than producers expected. Aging conventional wells are drying up. And a rebound in output that cost drillers as much as $3 billion annually to create has been overshadowed by shale oil gushing from wells in North Dakota and Texas. Then, of course, came the collapse in oil prices – a seven-month, 57% drop that was exacerbated by OPEC’s refusal to cut output in order to squeeze the U.S. shale drillers. No state is feeling that pressure more than California. Drillers there have idled more rigs – on a proportional basis – than those in any other part of the country.
“We spent a lot of money to go out and drill and use new technologies just to stop production from depleting in our mature fields,” Rock Zierman, chief executive officer of trade group California Independent Petroleum Association, said by phone. “It took us a lot of capital to basically run in place and now we’re looking at crude prices under $40 a barrel.” While U.S. benchmark West Texas Intermediate oil has fallen by more than half since June, California’s heavy Kern River crude has lost 65% of its value. The spot price of that oil slid to $34.87 a barrel on Jan. 22, below Gulf Coast crudes, below Bakken in North Dakota and under Alaska North Slope oil.
Falling prices haven’t been all bad for California. Governor Jerry Brown said in an interview with Bloomberg News Jan. 15 that while the decline in California’s oil drilling is “of concern,” drivers are benefiting. Gasoline is under $2.50 a gallon for the first time since 2009 in a state that’s usually home to some of the most expensive fuel in the country. Relief at the pump will save the average California household $675 this year, said Patrick DeHaan, a Chicago-based senior petroleum analyst at GasBuddy Organization Inc. “The oil price decline goes right into consumer spending,” Brown said at his Oakland office. “So there will be trade-offs.” Within the past four weeks, drillers idled half of their rigs in the state, dragging the total down to the lowest since 2009. Oil output, which had been creeping up since 2011, is now little changed and a slide will probably follow.
An increasingly toxic mixture of high interest rates, spiraling inflation and plunging oil means Russian banks will probably need a lot more than the $18 billion set aside last year to protect against bad loans. Russia is facing an “extremely widespread” banking crisis in 2015, and lenders may need to boost provisions for souring debts to $50 billion should oil stay in the mid-$40s, according to Herman Gref, the head of the nation’s biggest lender, Sberbank. That’s after banks increased reserves by 42% last year, compared with 27% in Turkey and 7.5% in Poland in the first 11 months, official figures show. Seven of Russia’s 10 worst-performing bonds this year are from banks as policy makers raised rates by the most since 1998 to shore up the ruble, whose 47% slide over the past 12 months deepened the burden of loan payments for consumers and businesses.
With the economy foundering after crude’s decline and sanctions over Ukraine, the ratio of bad debt will double from the third quarter of 2014 to as much as 13% by year-end, according to Liza Ermolenko at Capital Economics in London. “Bad loans will continue to pile up,” Yulia Safarbakova, an analyst at BCS Financial Group, said by phone. “Companies can’t refinance because of the rate increase and the ruble devaluation has hit them hard.” Lenders are on the front line of Russia’s economic crisis, bearing the brunt of oil’s slump and sanctions over President Vladimir Putin’s annexation of Crimea from Ukraine in March. The turmoil that followed forced the central bank to raise interest rates six times to shore up the ruble, choking loan growth to an almost four-year low, while retail deposits declined and bank profits tumbled 41%. The currency’s slide helped drive inflation to a five-year high of 11.4% in December, curtailing the central bank’s ability to reduce borrowing costs even as executives of the biggest Russian banks warn of the strain they are under.
The specter of growth-sapping deflation may have finally arrived in the euro zone but you won’t find policymakers in Spain panicking anytime soon. The country has made some “bold reforms” in the last three years, Luis de Guindos, the country’s finance minister told CNBC on Friday, shrugging off the weak consumer price data and blaming it on the dramatic fall in the price of oil. “This is positive, this is a positive sign. In Spain, oil prices are reducing the inflation rate. And it’s not because we have deflation. It’s totally different, inflation is like cholesterol. There are two kinds of deflation. The bad one and the good one. In Spain, you know, we have the good kind,” Luis de Guindos, told CNBC at the World Economic Forum in Davos.
This is the deflation that is filling the pockets of the households, he added, and has been fueled by the reforms Spain has taken in the energy markets and the cheaper price of oil at the pump, he said. Prices in the euro zone fell 0.2% year-on-year in December, marking the first time since 2009 that prices have dipped into negative territory. But the statistics for Europe showed that energy was indeed weighing massively on prices with an annual fall of 6.3%. In Spain, annual consumer prices fell around 1% in December. As well as energy reforms, de Guindos boasted that Spain’s new policies were the perfect example of the reforms that the euro zone is looking for.. “We were on the brink three years ago…we have started to reap the rewards of those policies,” he said.
Couldn’t possibly be even partly his fault, could it?
The governor of the central bank of Italy has said slowness to reform and political uncertainty in Italy has left it “lagging behind” other nations, partly due to the political instability the country has faced in recent years. Speaking from the World Economic Forum in Davos, Switzerland, Bank of Italy Governor Ignazio Visco said during his time in office at the central bank, he has seen five separate finance ministers come and go, which has dented foreign investment in the country. “While (German finance minister) Mr. Schauble has been in office (in Germany) for the three years I have been governor of the Bank of Italy, I have had 5 finance ministers. This is a major problem – we need certainty for investment,” he told CNBC. “We are lagging behind a number of sectors, areas in innovation and technological change. We have had enormous change at the global levels in the last 20 years and we should really cut the distance.
This is why you need stability in a number of areas, among them price stability and this is what we are trying to deliver,” he said. Visco also dismissed concerns that the euro could slide below the U.S. dollar, adding that euro dollar exchange rate, which has seen the euro fall to 11-year lows against the greenback after European Central Bank President Mario Draghi unveiled a new stimulus package on Thursday, was not a level central bankers monitored.. “Parity is a figure of imagination really. I have been the chief economist at the OECD when the euro was introduced, we were foreseeing that from $1.19 it should go to £1.30, it went to $0.80, so it’s better not to talk about what is the target,” he said. “We do not target the euro, there is no question. This is a channel of transmission of monetary policy, we are doing monetary policy the old fashioned way, we are simply supplying money to the economy,” Visco added.
“..a decoupling of productivity and wages..”
The American economy is by many measures well on the road to full recovery. The national unemployment rate was 6.2% in 2013, down from 9.3% in 2009; U.S. gross domestic product grew 5% in the third quarter of 2014; and the S&P 500 recently reached its all time high. And yet the middle class, which historically was the driver of economic growth, is falling behind. The average income among middle class families shrank by 4.3% between 2009 and 2013, while incomes among the wealthiest 20% of American households grew by 0.4%. Based on average pre-tax income earned by the third quintile, or the middle 20% of earners in each state, middle class incomes in California declined the most in the country. Incomes among middle class Californian households fell by nearly 7% between 2009 and 2013, while income among the state’s fifth quintile, or the top 20% of state earners, grew by 1.3%. [..]
According to Joe Valenti, director of asset building at the Center for American Progress, the American middle class is essential for economic growth because middle income families are spending relatively large shares of their incomes on goods and services. “An additional dollar in the hands of a middle income earner is going to drive a lot more spending than an additional dollar in the hands of someone in that top quintile,” Valenti said. While households in the top quintile are able to spend enormous sums of money, “at some point there’s only so much that an individual can spend, even on all different kinds of luxury goods.” While the middle class is the most important cohort in terms of spending and has in the past been essential for economic growth, middle income families have been the victims of wage stagnation. Valenti argued that as early as the 1970s, American companies started becoming much more productive.
However, because of “a decoupling of productivity and wages,” wages among many workers have remained stagnant, and many in the middle class “have not been able to reap the benefits of higher productivity,” Valenti explained. Instead, returns from higher productivity have gone to owners and investors and not to the workers, he said. Many of the beneficiaries of these returns are likely part of the wealthiest 20% of households, whose incomes have grown in recent years. Much of the income growth among the highest earning households is likely due to stock market gains. As Thomas Piketty argues in “Capital in the 21st Century,” income inequality results from a higher return on capital — money used to make more money in the stock market or other revenue-generating assets — than wage and GDP growth. With the rich holding a disproportionate share of money in the stock market, their incomes have recovered much faster than those of middle class workers.
Not very strong, Barry.
Economic historian Barry Eichengreen has spent a lifetime looking at mistakes that economic policymakers have made, especially in his best known work about the Great Depression. In an interview with MarketWatch, Eichengreen, an economics professor at the University of California, Berkeley, discussed some of the challenges facing the Fed, and a recent example of a policy mistake by the Swiss National Bank. He also warns that Washington’s tepid response to the financial crisis makes another, even bigger crisis, a possibility.
MarketWatch: Do you think the Fed will be able to lift interest rates this year?
Eichengreen: I have been skeptical for a while about the market consensus that the Fed is likely to move in June. I’ve been wondering whether the labor force participation rate may begin to rise again, in which case inflationary pressures will remain subdued and the unemployment rate will not continue to fall. And that rise in the labor force participation rate could indeed happen, we simply don’t know. I think the Fed will wait and see before it moves. Now we have in addition a strong dollar that may grow even stronger. That’s going to create headwinds for economic growth in the U.S. and I think it is quite conceivable that it could lead the Fed to wait longer. Finally there is volatility. There is the Swiss National Bank, kind of reminding us that volatility happens. It’s important to recall that the SNB is a small central bank of a small country in the grand scheme of things. If [the SNB] making a surprise move can wrong foot the market so dramatically, imagine what could happen if a big central bank pulled a surprise. So it’s quite possible, in my view, there is more volatility coming, and the Fed will have to deal with that too.
MarketWatch: What are the lessons for the Fed from the Swiss National Bank decision? The Fed has to be cautious and certain before it moves?
Eichengreen: I think the silver lining here is that at the cost of a recession in Switzerland and deflation in Switzerland, the SNB having made a serious mistake, it has reminded us that financial markets are not as liquid as they have been in the past, and there can be very big market moves as a result of a central bank surprise. So people will be looking more closely at the shadow banking system then they have been in the last relatively complacent year. We can thank the SNB for that if nothing else. And secondly, I think central banks have had a reminder about the importance of good communications policy, which we did not have coming out of Switzerland last week. The Yellen Fed has been very focused on the importance of communications and they will be even more focused as a result of last week, which can only be a good thing.
“The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”
One of President Barack Obama’s top economic advisers said abusive trading practices are costing workers billions of dollars in retirement savings each year and called for stricter rules on Wall Street brokers. Jason Furman, chairman of Obama’s Council of Economic Advisers, drafted a Jan. 13 memo citing research that says some broker practices, such as boosting commissions with excessive trading, cost investors $8 billion to $17 billion a year. The document was circulated to senior aides and indicates the White House may support tighter oversight of brokers who handle retirement accounts. The memo, obtained by Bloomberg News, makes the case for a Labor Department regulation that would impose a fiduciary duty on brokers handling retirement accounts, requiring them to act in their clients’ best interest.
Under current rules, brokers are held to a ‘suitability’ standard, meaning they must reasonably believe their recommendation is right for a customer. “Consumer protections for investment advice in the retail and small-plan markets are inadequate,” Furman wrote in the memo, also signed by Betsey Stevenson, another member of the economic council. “The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.” Wall Street has spent more than four years lobbying against the Labor rule. Led by firms like Morgan Stanley and Bank of America, the industry has argued that costlier regulations would take away options for smaller investors, who would lose access to advice as well as investment choices.
A White House official said the document, titled “Draft Conflict of Interest Rule For Retirement Savings,” shouldn’t be seen as a new turn in the Labor Department’s rulemaking. That process, the official said, would include a comment period if the administration moves forward. The Labor Department last year indicated that its proposal could come as soon as this month. A fiduciary duty on brokers would provide “meaningful protections” to investors, according to the memo.
Anything goes in America these days.
Following comments from the US overseas broadcasting chief listing RT as a challenge alongside the Islamic State and Boko Haram, critics said the outlet was singled out for “daring to advocate a point of view,” as well as for “competing for viewership.” On Wednesday, the new chief of the US Broadcasting Board of Governors (BBG), Andrew Lack, told the New York Times that RT posed a significant challenge – putting the broadcaster in a list alongside the Islamic State and Boko Haram terror groups. The comments have since been denounced on social networks and across the media spectrum. Speaking to RT, legal analyst and media commentator Lionel said the channel was being outrageously singled out and equated to the Islamic State for “daring to advocate a point of view.” “In the history of incoherent statements, this might be the granddaddy of them all.
In reading this, he alleges that Russia Today pushes… ‘a point of view,’” he told RT’s Ameera David. Georgetown University journalism professor Chris Chambers added that Lack’s words were “supremely silly and careless,” especially considering his media background. Lack previously worked for NBC, Bloomberg, and Sony Music. “This is a guy who has some media savvy, supposedly, even though he’s moved around a lot – maybe this is one reason he’s moved around,” Chambers told RT. “But this was a very careless and silly thing to say considering the prevalence of corporate media here in the United States, and the purpose of BBG’s constitutes like Voice of America, who are supposed to put out all kinds of views.” While Lack’s comments were roundly criticized, Steven Ellis of the International Press Institute said he was right in one way. “Mr. Lack could have phrased his comments more carefully: RT does indeed pose a challenge to US international broadcasting in terms of competing for viewership,” he said.
“Brazil is supposed to be in the middle of its rainy season but there has been scant rainfall in the south-east and the drought shows no sign of abating.”
Brazil’s Environment Minister Izabella Teixeira has said the country’s three most populous states are experiencing their worst drought since 1930. The states of Sao Paulo, Rio de Janeiro and Minas Gerais must save water, she said after an emergency meeting in the capital, Brasilia. Ms Teixeira described the water crisis as “delicate” and “worrying”. Industry and agriculture are expected to be affected, further damaging Brazil’s troubled economy. The drought is also having an impact on energy supplies, with reduced generation from hydroelectric dams. The BBC’s Julia Carneiro in Rio de Janeiro says Brazil is supposed to be in the middle of its rainy season but there has been scant rainfall in the south-east and the drought shows no sign of abating. The crisis comes at a time of high demand for energy, with soaring temperatures in the summer months.
“Since records for Brazil’s south-eastern region began 84 years ago we have never seen such a delicate and worrying situation,” said Ms Teixeira. Her comments came at the end of a meeting with five other ministers at the presidential palace in Brasilia to discuss the drought. The crisis began in Sao Paulo, where hundreds of thousands of residents have been affected by frequent cuts in water supplies, our correspondent says. Sao Paulo state suffered similar serious drought problems last year. Governor Geraldo Alckmin has taken several measures, such as raising charges for high consumption levels, offering discounts to those who reduce use, and limiting the amounts captured by industries and agriculture from rivers. But critics blame poor planning and politics for the worsening situation. The opposition says the state authorities failed to respond quickly enough to the crisis because Mr Alckmin did not want to alarm people as he was seeking re-election in October 2014, allegations he disputes.
Should be fun.
Pope Francis headlines are hard-hitting, targeted, staccato twitters, you get the whole truth in a series of blastings. First, starting with: “Pope Francis Has Declared War on Climate Deniers,” New Republic. Then, at the Week we read: “Republican Party’s war with Pope Francis has finally started,” Yes, 2015 is now a war zone: GOP conservatives at war with the Vatican. Then the Federalist, a conservative website, waves a red flag warning: “Don’t Pick Political Fights With Pope Francis.” Why? “Conservatives have everything to lose and nothing to gain from getting mad at Pope Francis for his public comments on homosexuality, global warming, free speech, and more.” Yes, conservatives warning Republicans: Don’t go to war with Pope Francis, you will lose.
He’s got an army of 1.2 billion faithful worldwide including 78 million American Catholics. Francis will win. A huge army. More important, Francis has a direct link to a heavenly power source. As the 266th descendent of the first leader of Christians, St. Peter, the pontiff will be touring America this fall. First stop, Philadelphia. Ring the Liberty Bell. Yes, Francis is actually on a campaign tour, selling his new economic mandate. And watch out. Behind that sweet smile and happy demeanor, this former boxer is attacking everything conservatives, capitalists, Big Oil, energy billionaires and Republicans love, cherish and believe as gospel. And they can’t defend their agenda nor counterpunch him directly.
From Philly, the pontiff’s campaign march heads for New York City where he’ll address the United Nations General Assembly, pushing his anticapitalist, anti-inequality, anti-the-superrich, anti-global warming, pro-climate-change, pro-the poor, pro-do-the-right-thing moral agenda. Then Francis will jet to Washington and our nation’s capitol, where a grumbling John Boehner and stoic Mitch McConnell have no choice but to invite Pope Francis to address a joint session of Congress. They may wish Pope Francis would quietly disappear. But that just isn’t going to happen, not after six million just attended his mass in the Philippines. He’s a seasoned campaigner, selling a powerful new economic agenda.