A new economic crisis would trigger a political backlash in Britain, Europe and the United States which could drag us all down into poverty
By Allister Heath
10:24PM GMT 10 Feb 2016
They bounce back after terrorist attacks, pick themselves up after earthquakes and cope with pandemics such as Zika. They can even handle years of economic uncertainty, stagnant wages and sky-high unemployment. But no developed nation today could possibly tolerate another wholesale banking crisis and proper, blood and guts recession.
We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.
The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.
Facebook, Google, and the other Internet titans have ever more sophisticated and intrusive methods of mining your data, and that’s just the tip of the iceberg.
The success of the consumer Internet can be attributed to a simple grand bargain. We’ve been encouraged to search the web, share our lives with friends, and take advantage of all sorts of other free services. In exchange, the Internet titans that provide these services, as well as hundreds of other lesser-known firms, have meticulously tracked our every move in order to bombard us with targeted advertising. Now, this grand bargain is being tested by new attitudes and technologies.
Consumers who were not long ago blithely dismissive of privacy issues are increasingly feeling that they’ve lost control over their personal information. Meanwhile, Internet companies, adtech firms, and data brokers continue to roll out new technologies to build ever more granular profiles of hundreds of millions, if not billions, of consumers. And with next generation of artificial intelligence poised to exploit our data in ways we can’t even imagine, the simple terms of the old agreement seem woefully inadequate.
In the early days of the Internet, we were led to believe that all this data would deliver us to a state of information nirvana. We were going to get new tools and better communications, access to all the information we could possibly need, and ads we actually wanted to receive. Who could possibly argue with that?
A pernicious cycle of collapsing commodities, corporate defaults, and currency wars loom over the global economy. Can anything stop it from unravelling?
By Mehreen Khan, graphic by Tom Shiel
10:00AM GMT 06 Feb 2016
A global recession is on the way. This truism of economics holds at any point in which the world is not in the grips of a contraction.
The real question is always when and how deep the upcoming downturn will be.
“The crash will come, but it would be nice if it came two years from now”, Thomas Thygesen, head of economics at SEB told over 200 commodity investors and analysts in London last month.
His audience was rapt with unusual attention. They could be forgiven for thinking the slump had not already arrived.
Commodity prices have crashed by two thirds since their peaks in 2014. Oil has borne the brunt of the sell-off, suffering the worst price collapse in modern history. Brent crude has fallen from $115 a barrel in the summer of 2014, to just $27.70 in mid-January.
The global economy seems trapped in a “death spiral” that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.
Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.
“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.
“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”
Three-month Treasury bill rate falls to negative 0.5 percent Very adverse scenario posits harsh worldwide recession
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As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.
In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.
“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” the central bank said in announcing the stress tests last week.
In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.
Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.
But in the stress test, banks would have to handle three-month bill rates entering negative territory in the second quarter of 2016, and then falling to negative 0.5 percent and holding there through the first quarter of 2019.
NEW YORK (Reuters) – U.S. companies are growing more concerned about the prospects of a recession in the year ahead for the first time since the end of the financial crisis.
So far this year, the number of companies whose executives have mentioned recession concerns to analysts and investors is up 33 percent from the same period a year ago; the first such increase since 2009. Some 92 companies have discussed a U.S. recession in their earnings calls, according to Thomson Reuters data.
That gloomy talk highlights worries that growth in the world’s largest economy may be coming to a halt. Gross domestic product grew 0.7 percent in the final quarter of 2015, down from 2 percent in the third quarter, while double the number of companies are cutting or flat-lining their capital spending in the year ahead, according to Reuters data. The benchmark S&P 500, a leading indicator of economic strength, had its worst January since 2009 as oil tumbled below $30 a barrel and remained near 12-year lows.
While nearly all companies that have discussed recession say that U.S. consumers continue to look healthy, many are growing concerned that the steep declines in energy prices and job cuts in the industry are going to bleed into the larger economy. Overall, economists expect the U.S. economy to grow 2.4 percent in 2016, according to a Dec. 30 Reuters poll.
Richard Fairbank, chief executive of Capital One Financial Co., for example, said he sees a recession as increasingly likely if financial market turmoil spreads into the real economy.
Because it is completely misreading the situation. Early in the new year, on Sunday, January 3, Federal Reserve vice chair Stanley Fischer delivered a hawkish speech to the American Economic Association.
Completely misreading the economy, which is woefully weak while inflation is virtually nil, Fischer strongly hinted that the Fed would be raising its target rate by a quarter of a percent every quarter for the next three years.
The next day the S&P 500 dropped 1.5 percent. In the week that followed, the broad index fell 6 percent. The week after that it fell over 2 percent. During that two-week period, the Dow Jones dropped 1,437 points.
The dollar went up. Oil plunged 21 percent. Raw-material commodities dropped. And credit risk spreads in the high-yield junk market rose substantially. Actually, it was a global event, as stock markets around the world plunged. Utter chaos.
What’s the definition of power? It’s the question we get most often at NJBIZ, when it comes time for the Power 100. Unfortunately, there’s not an easy explanation. The one we often give is this: “If you called the governor, how quickly would he call you back? If at all.” NJBIZ Staff, Read more
Thousands of longshoremen in New York and New Jersey walked off the job on Friday, grinding activity at some of the busiest ports on the East Coast to a halt and threatening to disrupt the delivery of goods across the region.
The walkout surprised many involved in the operation of the ports, according to officials, and the reasons behind the move were not immediately clear.
News of the work stoppage came in an alert issued by the Port Authority of New York and New Jersey, which acts as a landlord for the ports but does not control daily operations.
“Due to the current work stoppage in the port, no new trucks will be allowed to queue on port roadways,” the alert said. “Do not send trucks to the Port at this time.”
Officials with the New York Shipping Association, which runs the ports, could not immediately be reached for comment.
A spokeswoman for the association who spoke to Bloomberg News said the group was “trying to understand the reason for what appears to be a walkout and will take every measure available to ensure work resumes.”
The International Longshoremen’s Association, the union representing port workers, also could not be reached for comment, but a representative of the union told a local radio station that the dispute centered on hiring practices.
Gathering for the first time after their epoch-ending decision to raise interest rates in December, the backdrop couldn’t be more different for Federal Reserve policy officials.
The long-awaited rate increase went smoothly, but simmering concerns over China, the global economy as a whole, deflating commodities and financial market valuations have since risen to the fore. Even fund managers that were relaxed about slightly tighter monetary policy last month are now wondering whether that was complacent.
“It is reasonable for investors to wonder whether Fed’s December rate hike was a policy error,” admits Bob Michele, chief investment officer of JPMorgan Asset Management. “Historically the Fed has raised rates because either growth or inflation was uncomfortably high. This time is different — growth is slow; wage growth is limited; deflation is being imported.”
Perhaps most of all, many investors now fret that they are operating without a safety net they had grown attached to during the post-financial crisis era.
Some of Apple Inc’s main Asian suppliers expect revenues and orders to drop this quarter, indicating iPhone sales are almost certain to post their first annual decline since the flagship product was launched almost a decade ago.
The forecasts of lackluster sales by companies including Taiwan Semiconductor Manufacturing Co (TSMC), the world’s biggest contract chipmaker, and smartphone camera lens producer Largan Precision Co Ltd add to concerns about Apple’s outlook amid slowing global demand for smartphones.
Industry executives say the latest iPhone did not have enough new features from the previous model to tempt users, raising fears that Apple’s innovative streak – and the profits it has generated – may be running its course.
Apple, which reports December-quarter results on Tuesday, declined to comment on its sales outlook.
“Visibility is only a month at a time and demand is quite weak,” Largan Precision Chief Executive Adam Lin told an earnings briefing, referring to his company’s overall business.
Other suppliers said Apple now only gave them orders one month in advance, instead of the usual three months.
Marcus Leroux
Last updated at 12:01AM, January 16 2016
The start of this year has been the worst for financial markets since the onset of the Great Depression, with stock prices slumping around the world amid mounting concern over the situation in China.
A wave of selling has swept the world’s leading financial centres over the past two weeks, with the value of Britain’s leading companies falling by more than £110 billion since the start of the year.he year.
The FTSE 100 index of Britain’s biggest quoted companies fell 114 points, or 2 per cent, to 5,804 yesterday — the lowest close since November 2012. Indices in Europe and America have fared even worse: the Shanghai market was the worst performer, closing down 3.6 per cent, taking its total losses to 18 per cent for 2016. This was prompted by the price of a barrel of Brent crude dipping below the $30 mark, for the third time this week. In America the Dow Jones industrial average closed down 391 points, or 2.4 per cent, at 15,988.
The FTSE 100 index of Britain’s biggest quoted companies fell 114 points, or 2 per cent, to 5,804 yesterday — the lowest close since November 2012. In America the Dow Jones industrial average closed down 391 points, or 2.4 per cent, at 15,988.
The Shanghai market was the worst performer, closing down 3.6 per cent, taking its losses for the year so far to 18 per cent. This was prompted by the price of a barrel of Brent crude dipping below $30 for the third time this week.
David Buik, of Panmure Gordon, the investment bank, suggested that the “financial carnage” in stock markets in the first two weeks of the year was the worst since 1928.
Ridgewood NJ, In November Rep. Scott Garrett (NJ-05), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, questioned Federal Reserve Chair Janet Yellen about the Fed’s use of cost/benefit analyses on new regulations. Chair Yellen testified before the House Financial Services Committee today and admitted to Rep. Garrett that the Fed has no plans to conduct an economic analysis that would determine the cumulative impact that hundreds of new rules prescribed by Dodd-Frank and the Basel Committee will have on the economy.
Garrett spoke earlier last year saying “ the Dodd-Frank Act was signed into law amidst promises that the legislation would protect American consumers, make our economy more competitive, and end ‘too big to fail.’ Instead, Dodd-Frank has stifled economic growth, made it more difficult for Main Street businesses to obtain credit, and increased the likelihood that taxpayers will be on the hook for additional Wall Street bailouts. Most importantly, this law has and has made it harder for Americans to find a job, buy a home, and save money for their family’s future.
“Despite creating new bureaucracies that have imposed thousands of pages of rigid, invasive, and unworkable regulations, Dodd-Frank did nothing to reform the mortgage giants Fannie Mae and Freddie Mac, whose actions caused the 2008 financial crisis. Now more than ever we need solutions that expand economic freedom and opportunities for hard-working American taxpayers. I look forward to working with my colleagues in order to protect our economy from the harsh reality of Dodd-Frank.”
“I believe we have a virus in our banking system that is stifling competition and innovation. It protects incompetent management and insulates antiquated business models from market discipline. It incentivizes the largest banks to grow even larger and makes these mega-banks captive to government influence. This “Too-Big-To-Fail” virus is now poised to spread beyond banks to other types of financial firms. Not surprising, it is the government that is preparing to label other financial firms “Too-Big-To-Fail” by designating them as systemically important and spreading these market distortions.
The Spectacular Too Big Failure of Dodd-Frank
Quick-to-fix regulation often creates unintended consequences Dodd-Frank ultimately destroyed the community bank Consumers lost choice and completion, although farmers were hurt most
By Edward Morrissey
February 12, 2015
Not much unites the activist Left and activist Right, and not much ever has. After the near-collapse of the fiscal sector in 2008, though, populist movements on both sides found momentum in opposition to government bailouts of private-sector firms, especially in the financial industry.
“Too big to fail” became a mantra used to leverage massive taxpayer bailouts of financial institutions. Those bailouts enraged conservatives who believed that government had largely created the “too big to fail” players that needed rescuing from bad government policy. At the same time, progressives angrily denounced the parachutes provided to Wall Street fat cats while ordinary Americans suffered through a period of tight lending and a poor economy — especially in the labor markets.
By the time 2010 rolled around, the two sides could agree on one thing: changes were necessary to unwind “too big to fail.” Conservatives wanted to push government out of lending and finance through tax and regulatory reforms that would end rent-seeking behaviors that perpetuated it. Progressives wanted more regulation and government intervention to force the industry to behave better.
Since Democrats controlled Congress and the White House in the spring and summer of 2010, they chose the progressive policy. Congress passed and President Barack Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act in July of that year – not long after passing the progressive Affordable Care Act that created massive government intervention in the health-insurance industry.
For the past eighteen months, the news media has focused on the failures and incompetence of the Obama administration in the ACA’s rollout and infrastructure. The impact of Dodd-Frank has largely been ignored, until now. According to a new study by the Harvard Kennedy School of Business, the attempt to end Too Big to Fail backfired – in a big way.
One problem that led to TBTF was industry consolidation, which had been steadily reducing the number of smaller community banks that made lending much more accessible to small business owners, farmers, and middle and working-class families. Over the past twenty years, the share of US lending handled by community banks has fallen by half, from 41 percent to 22 percent, while the share handled by large banks more than doubled from 17 percent to 41 percent.
The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis.
Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don’t expect them to warn of the impending global recession and market mayhem.
But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.
Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety.
JAN 14, 2016 5:04 AM EST UPDATED JAN 14, 2016 9:08 AM EST
By Mark Gilbert
Forget hoverboards, fridges that talk to the Internet, and self-driving cars. Three of the most popular items at this month’s annual Consumer Electronics Show in Las Vegas — a cine camera, a record turntable and a new Polaroid snapper — suggest there’s a back-from-the-future movement gaining ground that reflects a growing fatigue with the virtual world of digital products, and a renewed enthusiasm for the old-fashioned analog experience.
It’s a debate that rages in my house. My partner sniffs books as she opens them; she says it conjures up memories of childhood library visits that promised to make all of the world’s knowledge and literary entertainment available. For her, the latest adventures of Bridget Jones in paperback, have all of the evocative power of Proust’s madeleine cakes. Me, I’ve owned a Kindle since they first became available almost a decade ago; I can’t remember the last time I bought an actual physical book.
