Global markets are no longer obeying economic common sense

Mark Blyth in The Guardian


The financial markets no longer know what is good for them or what is bad for them – so how can they know who to blame when things go increasingly wrong

 

‘Financial markets are becoming increasingly odd, wanting more expensive money and oil to restore confidence’ Photograph: Daniel Roland/AFP/Getty Images


 
One of the oddest things about 2016, so far at least, is how economic “common sense” is being twisted in all sorts of ways to explain what’s going on in the global economy.

By the end of 2015 market “commentators” were clamoring for an interest rate rise from the Federal Reserve to “restore confidence”. Normally, the only reason to raise rates is if there is inflation in the economy and you want to squeeze it out.


Problem: there was no inflation in the US, or almost anywhere else, at the end of 2015.



World markets in turmoil for a second day


So despite that rather obvious fact, the markets got the rise that they wanted and … it helped lower economic activity, precisely as one would expect, which has had a decidedly negative impact on confidence.


Generally speaking, when you make something more expensive – in this case, money – people buy less of it. But in this world, “the markets” were arguing that people would buy more of something if you made it more expensive, and that would produce “confidence”, so they would buy more, which is a bit odd, to say the least.


The next bit of oddness, apparent as we entered into 2016, was that the fall in commodity prices, especially oil, was not good news. Yet falling commodity prices means that everyone who is not a commodity producer or an oil company pays less for their inputs, and can then spend more on other stuff, which has to be good – right?


But “the markets”, once again, figured different. Falling oil prices were now seen as a bad thing, with markets in January having a mini heart attack as oil prices fell below $30 a barrel. When pressed as to why this was a bad thing, no one in these markets seemed to have a clear answer. But the markets freaked out anyway.


A cause for this volatility had to be found, and it was, by the middle of January, in the form of China’s banking sector. And so for the past month the markets have been fretting about the non-performing Loans (NPL’s) in China … and their “dodgy” economic statistics.


But just last year the IMF, who has plenty of data on NPL’s everywhere, brought the yuan into its basket of reserve currencies, which is hardly what you would do if you thought it was all going to pot. After all, China’s statistics and loan book have been questionable for years … but so has Italy’s and Ireland for that matter. And China has literally trillions of dollars (and other currencies) in reserves to throw at the problem – not to mention a decidedly non-democratic state that can, and often does, just make things “go away”.


So why is China now the cause of all ills? Along with China, cheap money, and everything else? Quite possibly because the world has changed, fundamentally, and financial markets are incentivised not to recognise this.

Today there is no inflation anywhere that isn’t due to a currency collapse brought on when the country that issues the currency is heavily dependent on imports, such as Russia and Brazil.


Globalisation, and concerted action for 30 years by the political right, has killed the ability of labour to demand higher wages, hence record inequality and super low inflation. Meanwhile, yields on assets, and interest rates in such a world, will stay “long and low” well beyond 2016 as global savings outpace global investment, and everyone except the US tries to run an export surplus.

This is an ugly world for financial markets, used to delivering the types of returns that people thought normal before the crash: 6 to 8%, liquid, and abundant. That money was made in a period when interest rates and inflation rates across the world fell year on year from abnormally high levels. In that world it was hard not to make money.


But now we find ourselves in a post-crisis world in which the old tricks no longer work despite growth at 1.5%, inflation at 0.5% and interest rates in some places at minus 0.25%.

Rather than face this fact, “the markets” blame China, this week, or it’s the Fed’s rate policy, last month, or its quantitative easing (another bête noir for markets of long standing).


But here’s the bad news. It’s not their fault. “Long and low as far as you go” driven by ageing populations in developed countries that save more than they spend pushing down interest rates and consumption to the point of deflation as everyone tries to run a surplus is the reality of the world today.


So what will the rest of 2016 look like?


Just like we have seen so far – periodic “inexplicable” and “what the heck” moments as markets everywhere hunt for causes to explain away something very inconvenient. That the game has changed for financial markets – that there is no going back to the boom times – and that the world going forward is a much more boring, and much less “finance friendly” place, than “the markets” want to admit. Most of all to themselves.

The curious case of Julian Assange

Editorial in The Hindu




Personal liberty still eludes WikiLeaks founder and Editor-in-Chief Julian Assange, despite a ruling by a United Nations legal panel that has declared his confinement “arbitrary and illegal”. The ruling of the Working Group on Arbitrary Detention — the authoritative UN body that pronounces on illegal detentions based on binding and legal international instruments — has met with support, but not surprisingly, with a bitter backlash as well, notably from governments that have suffered incalculable damage from WikiLeaks’ relentless exposures. Sweden and Britain have rejected the panel’s findings outright, despite the fact that they are signatories to the International Covenant on Civil and Political Rights, the European Convention on Human Rights and the other treaties upon which the UN legal panel has based its recommendation. The same countries have in the past upheld rulings of the same panel on similar cases such as the ‘arbitrary detention’ of the Myanmar leader Aung San Suu Kyi and former Maldives President Mohamed Nasheed. The British Foreign Secretary, Philip Hammond, has called the ruling “ridiculous”, and dismissed the distinguished panel as comprising “lay people, not lawyers”. As for the Swedish Prosecutor’s Office, it has declared that the UN body’s opinion “has no formal impact on the ongoing investigation, according to Swedish law”. In other words, both countries argue that his confinement is not arbitrary but self-imposed, and he is at ‘liberty’ to step out, be arrested, and face the consequences.

The specific allegation of rape that Mr. Assange faces in Sweden must be seen in the larger international political context of his confinement. He has made it clear he is not fleeing Swedish justice, offering repeatedly to give evidence to the Swedish authorities, with the caveat that he be questioned at his refuge in London, either in person or by webcam. While he will have to prove his innocence, Mr. Assange is not being paranoid when he talks of his fear of extradition to the U.S.: Chelsea Manning, whose damning Iraq revelations were first carried on WikiLeaks, was held in a long pre-trial detention and convicted to 35 years of imprisonment. The U.S. Department of Justice has confirmed on more than one occasion that there is a pending prosecution and Grand Jury against him and WikiLeaks. Mr. Assange’s defence team argues that the Swedish police case is but a smokescreen for a larger political game plan centred on Washington, which is determined to root out whistle-blowers such as Mr. Assange, Edward Snowden and Chelsea Manning for exposing dirty state secrets. It was WikiLeaks that carried the shocking video evidence of the wholesale collateral murder by the U.S.-led forces of civilians in Iraq and Afghanistan, in addition to thousands of pages of evidence of other violations of sovereignty and international law. By defying the UN panel’s carefully considered recommendation that Mr. Assange be freed and awarded compensation, Britain and Sweden are damaging their own international standing. They must reverse their untenable stand and do what law and decency dictate by allowing Mr. Assange an opportunity to prove his innocence without fearing extradition to the United States.

Declare a No Ball when a batsman attempts an early run

Girish Menon from CamKerala CC

David Hopps in his piece, 'Is the game going to the dogs' suggests that Stuart Broad in the forthcoming World T20 should without warning 'mankad' Kohli and Raina off successive balls. This is his way of reminding us of the role of convention and civilised behaviour in cricket and he implies that in its absence anarchy would prevail.

So, I decided to look up the meaning of convention on the omniscient Google and found that one of the meanings of convention is 'a way in which something is done'. I think it is this definition of convention that Hopps uses to criticise Keemo Paul for mankading Richard Ngarava in the U19 World Cup.

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I then asked myself what would be at the other end of the spectrum of convention and I felt the term 'creativity' would fit the bill. Google defines creativity as ' the use of imagination or original ideas to create something'.  When Keemo's act is examined from this perspective it is a creative act, not illegal, and an imaginative way to reach the objectives of his task.

In the history of the world, not just cricket, whenever any creative solution is implemented, affected governments would debate and proscribe such activity if it was not in the 'public' interest. In the case of 'mankading' such an inquiry has been conducted by the ICC and the act has still been deemed legal, hence the furore baffles me.

Hopps felt that it was newcomers who failed fail to honour cricket's conventions. So I asked myself, two questions:

'Is it newcomers to cricket who disrespect its conventions'?

and

 'Are conventions in the best interests of all participants?'

In the case of Keemo Paul, yes he is definitely a newcomer to cricket, so probably was the original sinner Vinoo Mankad and the other mankaders in between. I suppose these guys may have read about the laws of cricket and how the umpire's decision should not be questioned. As they plotted to get the opposing batsmen out, a difficult task at the best of times, they may have noticed this anomaly between the law and its actual practice. Being young and innocent they may have focussed on their objectives and failed to realise the opprobrium that will befall them if they challenged cricket's archaic anomalies.

So who makes conventions? A historical examination of societies will reveal that conventions and practices evolve out of the systems devised by the powerful. A history of cricket also reveals that it's rules and conventions were determined by upper class batsmen epitomised by the roguish W G Grace. The bowlers were the proverbial servants meant to exist for the pleasure of batsmen. It is these servants, like the erstwhile British colonies, who now challenge the prevalent conventions albeit legally in the case of the mankaders.

Hopps then gives an example of queue jumping to illustrate the catastrophe that will befall mankind if any convention is broken. Yes, the effects of queue jumping has created havoc in India and probably other erstwhile British colonies. Yet, as any economics student will tell you the problem with a queue is that it does not ration a scarce resource based on greatest need. If the A&E departments of NHS hospitals worked on the convention of queues then a Friday night over-reveller would have priority over a critical patient and an ambulance would be perennially stuck in traffic.



© PA Photos

Returning to mankading, I believe that cricket's current convention enable non striking batsmen to cheat wilfully throughout an innings and it is time for conventions keep in tandem with the laws of the game? I actually even have a solution for the mankading problem. Declare a no ball* and penalise the batting side every time a non striker steps out of the crease illegally. This could be done by the third umpire while the on field umpire focuses on the bowler's actions.



* This no ball means a one run penalty and a ball reduced from the batting side's quota.

If we want to solve the housing crisis, we must answer these three questions

Paul Mason in The Guardian

As housing charity Shelter turns 50, the country is still plagued by overcrowding, rogue landlords, insecure tenancies and homelessness. How do we even begin to make things better?



Boys from the City Of London school on a charity walk in aid of Shelter from Blackfriars, London, to Windsor, Berkshire, on 26 March 1969. Photograph: Len Trievnor/Getty Images


Its official name was Navigation Street, and a glance at a 19th century map suggests its origin: an isolated row of terraced houses leading down to the canal that runs through the middle of my hometown.

Canals were originally called “navigations” and the people who dug them “navvies”. This term – still in use in the 1960s – was code for poor, itinerant, Irish manual workers. So we called it “Navvy Street”: it was where the poorest people in the town lived and probably served that function from when it was built to when it was knocked down and turned into a “close”.

Navigation Street was the place I thought of when the housing charity Shelter reissued documentary photographs from the 1960s to mark its 50th anniversary. If you flick through Nick Hedges’ photos now, you could be forgiven for thinking they depict some kind of uniform, northern industrial bleakness at of the time. But you’d be wrong.



Shelter and the slums: capturing bleak Britain 50 years ago



The overcrowding, dirt and abject poverty in those images shocked people because they were exceptional. Two decades of post-war social housebuilding, plus a pro-active welfare state, had done a lot to suppress poverty. Places like Navigation Street were rare by the late sixties.

Shelter was born because people realised dwindling number of classic slum streets were not the only problem: there was widespread hidden homelessness expressed through overcrowding. The private rented sector was utterly insecure and housing costs were devouring the incomes of the poor.

Skip forward 50 years and we too have rising homelessness – 54,000 families in England last year, up 36% since the financial crisis began. Housing charities record rising overcrowding, precarious tenancies, predatory landlords and unaffordable rents. The difference is it’s not only the poor who suffer.

The shared student house has been reincarnated as the shared young professional’s house, with some even forced to share rooms. According to Crisis, there are 3.5m households containing a “concealed” adult or couple in England.

Meanwhile apartments too small to live in are being built across southern England: their occupants will have jobs once considered middle class. Precarious tenancies, outlawed during the housing reform movement of the 1960s, have created a “complain and you’re out” culture.

If you wanted to photograph the modern housing problem you’d go to the coffee shops where young people perch over laptops, late into the night, rather than endure their overcrowded flat. You would photograph the sofa-surfers; the migrants forced to live in converted garages; the families packing their bags as rent hikes and benefit cuts in the private rented sector force them to move to the periphery of towns and cities, or throw themselves at the local council for help.

The root of this problem is not one of policy – though the row over social housing and housing supply will probably shape this parliament – the deeper problem is the financialisation of home ownership.

At one point, rising home ownership solved many of the problems identified the 1960s. The predictably steady rise in house prices over time, like predictable inflation, created an escalator for the working class. If you combined that with vigorous social housebuilding, as practised by both Labour and Conservative councils in the 1970s, you created affordability at both ends of the scale.

If you then dramatically slash the supply of social housing, through right-to-buy and reduced council building, you create a permanent imbalance that turns home ownership into a form of asset investment.



‘Pay to stay’ trap will force working families out of council homes



What you get then is boom and bust. And the only way to cure the bust is for the government to greet every collapse in market prices with effective state subsidies for home ownership. This, in turn, induces a speculative frenzy of one way bets – on development, on buy to let, on off-plan investment buying from abroad.

To economists who study financial frenzy, the British housing market has followed the classic curve: the certainty of rising prices and short supply draws more and more people into the market, knowing a crash cannot wipe them out – because when confronted with falling house prices, governments have used taxpayers’ money and micromanagement of the banks to halt a spiral of repossessions and falling prices.

We don’t know what Britain would look like if the same levels of explicit subsidy and implicit preference had been pumped into the social rented sector. All we know is that the current situation is not tenable.

But we can ask ourselves the following questions:

First: how much space are people entitled to live in? The market sets no limits; even such formal rules as they still exist (they are being weakened) are flouted by the young salariat.

Second: what is the optimal balance between the private, social and state-owned rented housing and the owner-occupied sector? This cannot be hard to fathom since many cities in the 1980s and early 1990s achieved housing markets that “cleared” in economic terms: in Leicester in the 1980s I had no problem finding a secure private tenancy; no problem getting the council to hound my landlord to maintain it properly; very little problem moving from there to a housing association flat; very little problem transferring, as a key worker, from there to a council flat in London. Yes, London.

Third, what do we mean by “affordable”– when it comes to either rents or prices on state-specified newbuild homes? Under both Labour, Coalition and the Conservatives the concept of affordability has become delinked from incomes and attached to a percentage of the market rate. The same state that decided nobody should be repossessed during the 2008-11 housing slump could decide that nobody has to pay more than a fixed percentage of their incomes on housing costs.

Maybe we need to start with principles: that everyone has a right to a home; that every person has a right to a minimum amount of space in that home; and that those who claim the right to own houses nobody lives in should pay a hefty, disincentivising penalty.

Yes, that’s an infringement of the market – but housing in Britain has never been a free market: it is being created and re-created through regulation and deregulation – on benefits, on affordability, on building standards, on right to buy. The point is to shape the market towards smart outcomes.