NEWS,22.03.2013

China, Russia eye energy, investment deals

China's new leader Xi Jinping, on his first foreign trip as president, held talks with Russian host Vladimir Putin on Friday which focused on a raft of energy and investment accords. A key deal expected to be signed between the two nations will see Russia ramp up oil supplies to China, which is the world's biggest energy consumer."We are grateful for your decision to make your first foreign trip to our country," Putin said at the start of the Kremlin talks."Russian-Chinese ties are an important factor of international politics."Xi, who arrived in Russia accompanied by first lady Peng Liyuan, said he was eager to boost "strategic cooperation" with Putin, stressing his personal rapport with the Russian strongman."We always treat each other with an open heart," said Xi, who will travel to Africa after his Moscow talks."We are good friends," said Xi, who will preside over the world's second-largest economy for the next 10 years.Putin and Xi first met in 2010 when the Chinese leader, then vice-president, travelled to Moscow for talks.Earlier in the day Russian Deputy Prime Minister Dmitry Rogozin and his Chinese counterpart Wang Yang oversaw the signing of a number of deals.These agreements included a $2bn (€1.5bn) deal involving Russian energy firm En+ Group and China's largest coal company Shenhua Group to develop coal resources in Russia's Far East.Experts say the two leaders will use the symbolic visit to try and map out a cooperation plan for the next 10 years."Essentially we are talking about a new epoch in relations between Russia and China," said Sergei Sanakoyev, a veteran China expert with links to the Russian government.Once bitter foes during the Cold War, Moscow and Beijing have over the past years ramped up cooperation as both are driven by a desire to counterbalance US global dominance.At the UN Security Council, China and Russia have both vetoed resolutions to impose sanctions on Syrian President Bashar al-Assad's regime, which is locked in a two-year conflict with the opposition.Both Syria and North Korea are set to be high on the day's agenda. But the economy is expected to be at the forefront of the talks between Russia, the world's largest energy producer, and China, the world's largest energy consumer.Russia, which wants to diversify its energy markets away from Europe, needs to finalise a potentially huge gas deal which could eventually see almost 70 billion cubic metres of gas pumped to China annually for the next 30 years.The Russian state's natural gas giant Gazprom is likely to sign an agreement although not a firm contract, said company spokesman Sergei Kupriyanov.The commercial contract has so far proved elusive as talks have become mired in pricing disputes.Russia's biggest oil company Rosneft is expected to sign an agreement to boost supplies to China from the current 15 million tonnes a year. A Rosneft spokesperson declined to comment but Rosneft chief Igor Sechin indicated that the firm could increase supplies to China to 50 million tonnes a year."China is a strategic market for Rosneft," he told Russian media. "The goal of 50 million (tonnes a year) is not something that's unattainable."Sanakoyev, general secretary of the Russia-China Chamber for Promotion of Trade in Machinery and Innovative Products, said the two countries will also sign a preliminary agreement allowing Chinese companies to help develop Russia's remote Far East. Xi's first overseas trip will then take him to Africa to shore up his resource-hungry country's soaring influence on the continent with visits to Tanzania, South Africa and the Democratic Republic of Congo.Russia and China are members of the BRICS grouping of emerging economies, which includes Brazil, India and South Africa and which will hold a summit in South Africa next week attended by both Putin and Xi.

Russia rebuffs Cyprus, EU awaits 

'Plan B'

Russia rebuffed Cypriot entreaties for aid on Friday, leaving the island's increasingly isolated leaders scrambling to strike a bailout deal with the European Union by next week or face the collapse of its financial system.In Nicosia, lawmakers considered proposals to nationalise pension funds, pool state assets and split the country's second-largest bank in a desperate effort to satisfy exasperated European allies.The governor of the Central Bank, Panicos Demetriades, warned political leaders the country would face a disorderly bankruptcy on Tuesday unless they approved the bills, an official present at the talks said."The next few hours will determine the future of the country," government spokesman Christos Stylianides said before the parliamentary debate. "We must all assume our share of the responsibility."Even if the measures are approved, there was no confirmation they would raise the €5.8bn demanded by the EU in return for a €10bn bailout to avoid a default.Hundreds of protesters rallied outside the parliament and depositors, who began raiding banks' cash machines last weekend, queued again to withdraw what they could.The clock was running down to a Monday deadline set by the European Central Bank for a deal to be in struck before it cuts funds to Cyprus's stricken banks, potentially pushing it out of Europe's single currency.Nicosia angrily rejected a proposed levy on tax deposits in exchange for the EU bailout on Tuesday and turned to the Kremlin to renegotiate a loan deal, win more financing and lure Russian investors to Cypriot banks and gas reserves."The talks have ended as far as the Russian side is concerned," Russian Finance Minister Anton Siluanov told reporters after two days of crisis talks with his Cypriot counterpart, Michael Sarris.Russians have billions of euros at stake in Cyprus's outsized and now crippled banking sector, a factor in the EU's unprecedented demand that bigger depositors take a hit in the interests of keeping Cyprus afloat.But Siluanov said Russian investors were not interested in Cypriot gas and that the talks had ended without result. Sarris was due to fly home, where lawmakers were locked in yet more crisis talks.New bills submitted to the Cypriot parliament included a "solidarity fund" to bundle state assets, including future gas revenues and nationalised semi-state pension funds, as the basis for an emergency bond issue.JP Morgan likened it to "a national fire sale", and eurozone paymaster Germany indicated it opposed the nationalisation of pension funds.They were also considering a bank restructuring bill that officials said would see the country's second largest lender, Cyprus Popular Bank, split into good and bad assets, and a government call for the power to impose capital controls to stem a flood of funds leaving the island when banks reopen on Tuesday after a week-long shutdown.There was no silver bullet, however, and Cyprus's partners in the 17-nation currency bloc were increasingly unimpressed. It was unclear whether parliament would even vote on the bills on Friday."I still believe we will get a settlement, but Cyprus is playing with fire," Volker Kauder, a leading conservative ally of German Chancellor Angela Merkel, told public television ARD.Merkel told lawmakers that nationalisation of pension funds was unacceptable as a way to plug a hole in finances and clinch the bailout, parliamentary sources said.Two lawmakers quoted the chancellor as saying debt sustainability and bank restructuring would have to be the core of any deal, which she called a matter of "credibility".They also quoted Merkel as saying: "There is no way we can accept that", and "I hope it does not come to a crash".Her finance minister, Wolfgang Schaeuble, said he did not know whether eurozone finance ministers would meet over the weekend. "I can't say in advance if and when Cyprus will deliver results," he said.Cypriots have been stunned by the pace of the unfolding drama, having elected conservative President Nicos Anastasiades barely a month ago on a mandate to secure a bailout.News that the deal would involve a levy on bank deposits, even for smaller savers, outraged Cypriots, who raided cash machines last weekend.While EU lenders, notably Germany, had wanted larger, uninsured bank depositors to bear some of the cost of recapitalising the banks, Cyprus feared for its reputation as an offshore banking haven and planned to spread the levy to deposits under €100000 were covered by state insurance.Senior eurozone officials acknowledged in a confidential conference call on Wednesday that they were "in a mess" and discussed imposing capital controls to insulate the currency area from a possible collapse of the small Cypriot economy.Cyprus itself refused to take part in the call. Several participants described its absence as troubling and reflecting the wider confusion surrounding the island's predicament.In Brussels, a senior European Union official told ECB withdrawal would mean Cyprus's biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro."If the financial sector collapses, then they simply have to face a very significant devaluation, and faced with that situation, they would have no other way but to start having their own currency," the EU official said.Cypriot banks have been crippled by their exposure to Greece, the centre of the eurozone debt crisis.On Thursday there were angry scenes outside parliament, where hundreds of demonstrators gathered after rumours spread that Popular Bank would be closed down and its staff laid off."We have children studying abroad, and next month we need to send them money," protester Stalou Christodoulido said through tears. "We'll lose what money we had and saved for so many years if the bank goes down."

Cyprus knocks German business confidence

German business confidence fell unexpectedly in March, data showed Friday, as weak economic data, political gridlock in Italy and the Cyprus crisis begin to sour business confidence in Europe's top economy.The Ifo economic institute's closely watched business climate index slipped to 106.7 points in March from 107.4 points in February. Analysts had been expecting a modest increase this month to 107.6 points."After rising sharply last month, the Ifo business climate index edged downwards in March," said Ifo president Hans-Werner Sinn. "Companies were slightly less positive about their future business outlook than in February, but assessed their current business situation almost as positively as last month."But he insisted: "The German economy remains on track in a challenging environment thanks to strong domestic demand."Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.The sub-index measuring current business slipped fractionally to 109.9 points in March from 110.2 points in February. And the outlook sub-index fell by one full point to 103.6 points.Cyprus's Parliament overwhelmingly rejected a proposed tax on bank deposits as a condition for aid, pushing the Mediterranean island a step closer to the brink of financial meltdown.The Cypriot Parliament is expected to discuss a new banking bill on Friday. This follows reports that the European Central Bank would withdraw its emergency liquidity assistance programme by next Monday if an agreement has not been agreed.

US congress OKs funding stopgap

US lawmakers approved a funding stopgap on Thursday that prevents a government shutdown, but their clash over budget blueprints signaled a contentious debate over the future of federal spending. A trio of key votes bookended the action in Congress ahead of a two-week congressional recess, the most urgent one being on the so-called continuing resolution, a $1.2 trillion appropriations measure that will keep the doors of federal agencies open through September, the end of the fiscal year. The Senate passed the measure on Wednesday, and with the House following suit and making no changes, it now heads to President Barack Obama's desk for his signature.The CR locks in the $85bn in automatic spending cuts mandated by the so-called sequester, although it cushions the blow by providing some flexibility within the Pentagon and other departments to make more targeted, less reckless cuts.Obama must sign the CR into law by March 27 or the US government will go into partial shutdown.With 2013 funding largely resolved, lawmakers turned immediately to the impasse over future government spending, as well as the looming battle over raising the country's borrowing cap. The House passed the plan crafted by Paul Ryan, the House Budget Committee chairperson and last year's failed Republican vice presidential nominee, along a mostly party-line vote, 221 to 207."We've done the hard work of bringing this plan forward," House Speaker John Boehner told members on the floor.All US budget blueprints are essentially political messaging documents, leaders on both sides acknowledged on Thursday.Still, 10 Republicans voted against the Ryan plan. And when it was brought to a vote in the Democratically-led Senate, it was rejected 40-59, with five Republicans opposed, potentially weakening the Republican bargaining hand during upcoming negotiations.The Ryan blueprint aims to balance the budget over the next 10 years, but Democrats denounce it as a recipe for a decade of austerity marked by slow economic growth and dramatic cuts to social programs, education and training.It would slash federal spending, reform entitlements and repeal Obama's landmark healthcare law. It also insists on no new taxes, despite aiming to pare down the $16 trillion national debt.Chris Van Hollen, top Democrat on the House Budget Committee, criticised the Ryan plan as "an uncompromising ideological approach to our budget issues."The Democrats introduced their own budget this week for the first time in four years, and with the Ryan plan rejected, the blueprint by Senate Budget Committee chair Patty Murray could be voted on as early as Friday.Murray is pushing what she says is a balanced approach to deficit reduction, including targeted spending cuts and new tax revenue."The House Republicans have doubled down on the failed policies" that lost them the 2012 election Murray said.An ideological battle is brewing, with House minority leader Nancy Pelosi accusing Ryan of seeking to line the pockets of the wealthy by hollowing out programs for seniors and the poor like Medicare, Medicaid and Social Security.Pelosi said she was ready to discuss ways to strengthen such entitlements, but warned: "If your goal, though, is to have them wither on the vine or be reduced in a way that does not meet their purpose, then them's fighting words."Boehner hinted that a battle over the debt ceiling loomed too, saying the only way the House would raise the ceiling before it is reached in May would be if Obama agreed to an equal amount in spending cuts."Dollar for dollar is the plan," Boehner told reporters. "The president has been clear that he's not going to address our entitlement crisis unless we're willing to raise taxes. I think the tax issue has been resolved.""So at this point then, I don't know how we're going to go forward."Asked if he saw the debt ceiling as leverage in getting Obama to agree to entitlement reform, Boehner said "there might be some there" but stressed: "I'm not going to risk the full faith and credit of the federal government."Meanwhile the Defense Department, thanks to the CR which tweaked the defense cuts, said it was delaying by two weeks this week's notices to 800 000 civilian workers that they would face rolling furloughs through September.

Airfares climb 25% - report

Airfares to some of the most popular U.S. and international destinations rose by 25% or more last year, and June was the most expensive month to travel, according to the website Kayak.com.The costs of flights from North America to Lima soared 33%, London fares were up 30% and tickets to New Orleans, Madrid, Munich and Sydney jumped 28%.Data compiled by the website, which compares hundreds of travel sites at once, showed a ticket to Paris, Beijing, Key West in Florida and Hong Kong was 25% more last year than in 2011, while the airfare to Toronto slumped 3%."We found that overall airfare increased 17% across the board from 2011 to 2012," said Maria Katime, a Kayak spokesperson."Toronto, of all the popular destinations that we looked at, was the only one where the airfare decreased," Katime added. Kayak did not analyze the reasons for the price increases.Despite the jump in airfare to London, which hosted the Olympics and celebrated Queen Elizabeth's Diamond Jubilee in 2012, was the top international destination for North American travelers, followed by San Juan, Cancun, Paris and Rome.Gambling mecca Las Vegas topped New York, Los Angeles, Orlando and San Francisco as the most popular US city to visit.Destinations that increased in popularity in 2012 but did not have hefty increases in airfare included Punta Cana and Santo Domingo in the Dominican Republic, Tokyo, Mumbai and Nashville.Kayak found that the cheapest flights were in January, February, September and October for domestic flights, and February and March for international fares. January was the least busy month to travel.The cheapest average airfares for domestic trips of up to one week are for flights leaving on Saturday and returning on Monday. For longer stays, leaving on Tuesday and returning on a Wednesday can lower airfares by an average of 10%.The website found the opposite for international trips. Prices were 21% lower than average for passengers on short trip of up to a week if they left on Tuesday and returned on a Wednesday, and 9% lower for longer stays with a Saturday departure and a Sunday return.

S&P cuts Cyprus rating

Ratings firm Standard & Poor's dealt a further blow to reeling Cyprus on Thursday, cutting its credit rating as the eurozone country struggles to avoid a banking sector meltdown.S&P lowered Cyprus's rating to 'CCC' from 'CCC+' as the country raced under a tight deadline to formulate an acceptable rescue plan with the European Union.The lowered credit rating would make it more costly for Cyprus to borrow, further exacerbating the stricken nation's woes.The US ratings firm warned the outlook was negative for the country, and that the rating could be lowered further if critical financing was not secured "soon."While a bailout deal is possible, S&P said, "In light of building economic and financial stability pressures, the terms of any support package are likely to be unpopular and challenging to implement in the context of a severe, protracted economic downturn and an extended bank holiday.""As a consequence, we believe that risks of a sovereign default are rising."S&P said that neither Cyprus's government nor bank shareholders appeared capable to meet the pressing capital needs of its teetering banks."In the absence of foreign private or official capital injections into the Cypriot banks, we see few means to recapitalise the distressed portion of the system without converting bank liabilities, including deposits, into equity claims," it said in a statement.The S&P downgrade came as the Cyprus cabinet, meeting in a crisis session, was attempting to approve an alternative bailout plan after parliament rejected an agreement with the EU and International Monetary Fund because it included a heavy tax on bank deposits.The European Central Bank, ratcheting up the pressure, said that Cyprus must agree a bailout deal by Monday or it will withdraw emergency financing of Cypriot banks.Standard & Poor's warned: "We would likely lower the rating if Cyprus's government fails to obtain a financing program soon."The CCC rating is three notches above sovereign default.S&P discounted speculation that the crisis may force Cyprus to exit the eurozone."Our baseline expectation is that Cyprus will remain a member of the European Economic and Monetary Union," it said.

Eurozone ready to discuss Cyprus bailout

Eurozone finance ministers extended a Cypriot olive branch late on Thursday, as their leader said currency partners were willing to work with Nicosia on new plans to make work a bailout that re-draws the island's stricken banking sector."The Eurogroup stands ready to discuss with the Cypriot authorities a draft new proposal, which it expects the Cyprus authorities to present as rapidly as possible," Eurogroup chairperson and Dutch Finance Minister Jeroen Dijsselbloem said in a statement after a two-hour conference call with peers.As the ministers huddled around their video screens, the Cyprus cabinet was in crisis session bidding to approve a "Plan B" after an earlier agreement with the EU and IMF collapsed amid anger over a weekend raid on savers that Dijsselbloem says should have been understood as a "wealth tax" aimed principally at mainly Russian oligarchs' investments.The European Central Bank has given Cyprus until Monday to find a way out of a crisis that has left Moscow furious over frozen government agency accounts with banks in the offshore finance centre shut for a full week, the worst affected imposing radically lowered cash withdrawal limits.With EU sources semi-openly floating a willingness to cut Nicosia loose if it doesn't clobber a finance industry Germany and others associate openly with the onward eurozone circulation of ill-gotten money-laundering gains, and a nervous crowd gathered outside the Cypriot parliament, Dijsselbloem's remarks served as an inducement to lawmakers there."The Eurogroup would subsequently, on the basis of a Troika analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment programme," Dijsselbloem added, teeing up a tense weekend of negotiations from Moscow to Nicosia and Brussels or Berlin.However, in what analysts have warned is a dangerous game of Russian roulette, he also underlined that any new plan to fill a €6bn hole and so unlock up to €10bn in eurozone and IMF loans between now and 2016 would need to "respect" other demands already made by creditors.Rapid passing of legislation then provides a further hurdle in a race against time to prevent a collapse in the island's banking sector - one heavily based on deposits rather than credit, and so potentially more vulnerable than other victims during the debt crisis to runs on weak banks.As the political point-scoring continued, Dijsselbloem finished by insisting that ministers "reaffirmed the importance of fully guaranteeing deposits" below the sensitive threshold of €100 000 - the cut-off point for European Union legal protections.

NEWS,18.02.2013

JFK jacket sold for over $600

A leather bomber jacket that belonged to slain US president John F. Kennedy has been sold at auction for $665 500, far exceeding the initial estimate, a Massachusetts auction house said on Monday.The brown Air Force One jacket was one of 700 pieces put on the auction block on Sunday after the family of David Powers, a special assistant to Kennedy, discovered a treasure trove of JFK memorabilia in the Powers family home.The jacket was initially estimated at $20 000 to $40 000.Among the other JFK items up for sale, nearly 50 years after his assassination, were photographs, campaign posters, letters and books belonging to the president. The sale lasted more than six hours, the house said.

 

Horsemeat scare hits UK consumers hard

The discovery of horsemeat in products sold as beef has shocked many British consumers into buying less meat, a survey showed on Monday.The furore, which erupted in Ireland last month and then spread quickly across Europe, has led to ready meals being pulled from supermarket shelves and damaged people's confidence in the food on their plate.It raised concerns over food labelling and the complex supply chain across the European Union, putting pressure on governments to explain lapses in quality control.A fifth of adults said they had started buying less meat after traces of horse DNA were found in some products, according to the poll conducted by Consumer Intelligence research company."Our findings show that this scandal has really hit consumers hard, be it through having to change their shopping habits or altering the fundamentals of their diet," David Black, a spokeperson for Consumer Intelligence said.The online poll, conducted on February 14-15, questioned more than 2 200 adults on their spending habits following the horsemeat scandal. It gave no specific figures on how much meat people were buying, focusing only on broader trends.More than 65% of respondents said they trusted food labels less as a result."(Brands) will have to put in place really stringent ways of checking that what's being delivered and what's on the label is indeed what's in there," Black said. In the month since horsemeat was first identified in Irish beefburgers, no one is yet reported to have fallen ill from eating horse but many supermarkets and fast food chains are already struggling to save their reputations. Governments across Europe have stressed that horsemeat poses little or no health risk, although some carcasses have been found tainted with a painkiller given to racehorses but banned for human consumption. More than 60% of adults surveyed said they would now buy meat from their local butchers, the poll said, while a quarter of adults said they would now buy more joints, chops or steaks instead of processed meat. Michael Suleyman, who owns a family-run butchers shop in Brixton, London, said more customers appeared concerned although for now there had not been any difference in sales figures."We have seen people panicking and asking us lots of questions like 'where do you get your meat from?'," Suleyman, 51, told Reuters. "We assure our customers by showing them the meat and mincing it for them in front of their eyes. "But with inflation running above central bank targets and an uncertain job market, the spending power of British consumers has been eroded in recent years and, for some, buying more expensive meat is not an option. Nearly a fifth of respondents said they wanted buy less processed meat such as ready-meals, but could not afford to. At a London branch of Britain's biggest retailer, Tesco, which found horse DNA in some of its own-brand frozen spaghetti bolognese meals last week, consumers were still buying meat products. "I've got nothing against horse meat," said Sean Cosgrove, 39, a local government employee. "I think you're being ambitious if you expect top quality meat in those products anyway."

ECB warns of low interest rates

The head of the European Central Bank on Monday outlined the risks of keeping interest rates low for a long period, suggesting the ECB is unlikely to slash rates further from already record lows.Speaking to members of the European Parliament in Brussels, Mario Draghi also reiterated the bank's view on the level of the euro on the foreign exchange markets, saying talk of a currency war was "really excessive". "Naturally, the ECB is aware of the challenges arising from a protracted period of low policy rates," Draghi said, a week after the bank decided to keep its main interest rate on hold at a record low 0.75%.He said that low interest rates for a long time could harm the returns for savers and investors as well as possibly fuelling bubbles in house prices. In a low interest rate environment, banks might also have less incentive to monitor credit risk properly "and may provide too many loans to non-profitable business," Draghi said.Draghi said current interest rates were "accommodative", which analysts often take to mean that the bank is unlikely to cut them further.Turning to the exchange rate, Draghi said: "I find really excessive any language referring to currency wars" amid concerns that the euro is too strong on the foreign exchange markets and worries over the weak Japanese yen.He referred to the statement made by the Group of 20 countries in Moscow over the weekend, where leading powers vowed they would not target specific forex rates or devalue currencies to make them more competitive."I urge all parties to exercise very, very strong verbal discipline. I think the less we talk about this the better," said Draghi.Some eurozone countries, notably France, have expressed concern that the level of the euro, which has risen recently on the foreign exchange markets, could hurt exports and dampen any nascent recovery in the eurozone.Paris wants the eurozone to arm itself with an exchange rate policy. The external value of the euro should not be left to market forces, French President Francois Hollande has argued.But Draghi hit back saying: "The exchange rate is not a policy target, but it is important for growth and price stability."He also denied that the euro was too strong, saying it was "around its long term average."On the economy, the ECB chief said: "We enter 2013 in a more stable financial environment than in recent years" and predicted "a very gradual recovery" later in the year as the 17-nation eurozone battles with recession.

 

Qatar spends over $15bn on new airport

Energy-rich Qatar will open on April 1 a new airport with a capacity to handle 30 million passengers, as the Gulf state vies to increase its share of transit air travel, an official said Monday."The annual capacity of Hamad International Airport will be 30 million passengers when it opens on April 1," the head of Qatar's Civil Aviation Authority Abdul Aziz al-Nuaimi told AFP.He said the cost of building the new hub over nearly eight years has "exceeded $15bn." Eleven foreign budget carriers will be the first airlines to use the new facility, while the emirate's flag carrier Qatar Airways, will be joining in the second quarter of 2013, he said.The new airport spreads over 29 square kilometres (11.2 square miles), and features two runways stretching 4.85 kilometres (three miles) and 4.25 kilometres (2.64 miles) respectively.The terminal has a total surface of 60 hectares.The new airport, which replaces the old Doha International, is expected to raise its capacity to 50 million passengers per year by 2020.Qatar Airway is one of the fast growing carriers which like neighbouring Gulf carriers, Dubai's Emirates and Abu Dhabi's Etihad, vies to increase its share of transit travel between Europe, Asia and Australia.He acknowledged that austerity in many countries was strangling economic growth but insisted it was "unavoidable" for nations, especially those labouring under high debt, to reduce their public deficits.He called for "properly designed fiscal consolidation as based more on expenditure cuts rather than on tax rises", noting that taxes in the eurozone were "indeed very high already."

Crisis-hit arms market shrinks

For the first time since the mid-1990s, sales of the 100 biggest arms dealers excluding China declined in 2011 as the economic crisis prompted budget cuts, a Stockholm-based think tank said on Monday. The 100 companies' total sales declined, including inflation, by five percent from the previous year, the first time a drop has been registered since 1994, the Stockholm International Peace Research Institute (SIPRI) said.Even excluding inflation, the total fell, to €307bn from €412bn in 2010."Austerity policies and proposed and actual decreases in military expenditure as well as postponements in weapons programme procurement affected overall arms sales in North America and Western Europe," SIPRI said in a statement.Troop drawdowns in Iraq and Afghanistan and sanctions on arms transfers to Libya also played a role in the decline, it added.Proposed austerity measures "have led some companies to pursue military specialisation, while others have downsized or diversified into adjacent markets" such as security and in particular cyber security, the think tank said.The SIPRI figures do not include China due to a lack of reliable data. Chinese companies supply a military that enjoys the world's second-biggest budget.The list of top 100 arms-producing companies is dominated by American and European companies, which respectively hold 60% and 29% of the global market and together hold the top 17 spots on the list.US group Lockheed Martin is number one, with sales of $36.3bn in 2011, ahead of another US group, Boeing, and BAE Systems of Britain in third place.The think tank, which is specialised in research on conflicts, weapons, arms control and disarmament, was created in 1966 and is 50% financed by the Swedish state. It defines arms sales as "sales of military goods and services to military customers, including both sales for domestic procurement and sales for export."

 

Thai economy soars in fourth-quarter

Thailand's economy enjoyed record growth in the fourth quarter of 2012 as industry recovered from the impact of the kingdom's worst floods in decades, official data showed Monday.Gross domestic product (GDP) soared 18.9% in the three months through December from the year-earlier period according to the government's National Economic and Social Development Board (NESDB).GDP rose 3.6% compared with the previous quarter.Strong domestic and international demand helped to drive the strong performance, said NESDB secretary general Arkhom Termpittayapaisith. "There has been a full recovery after the severe floods," he told a press conference. The Thai economy suffered a double-digit contraction in the wake of the months-long floods, which deluged vast swathes of the country in 2011, killing hundreds of people and causing widespread damage to factories. At their height the floodwaters affected 65 of the country's 77 provinces, swamping hundreds of thousands of homes and disrupting global supply chains.The NESDB forecasts economic growth of 4.5%-5.0% for 2013, after an expansion of 6.4% in 2012."An economic recovery in the United States, China and Europe will be good for Thai exports," Arkhom said, adding that an increase in the kingdom's minimum wage would also boost domestic demand.Rising car sales and production helped to lift GDP in the fourth quarter due to a government scheme to encourage new vehicle purchases.Thailand's central bank last month held its key interest rate steady at 2.75% citing a better-than-expected performance in the economy.

NEWS,30.01.2013

US economy shrinks in fourth quarter

The US economy contracted at a rate of 0.1% in the fourth quarter, according to the government's first estimate on Wednesday.But the economy expanded overall a modest 2.2% for the full year in 2012, a gain from 1.8% in 2013, the Commerce Department said.The fourth quarter estimate was lower than forecast, but came after a strong 3.1% pace in the third quarter."The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending," the department said.It stressed that the first estimate of GDP growth is based on incomplete data and is often revised.

US adds more jobs than expected

US private-sector employers added 192 000 jobs in January, more than economists were expecting, a sign of growth in the labor market, a report by a payrolls processor showed on Wednesday.Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 165 000 jobs. December's private payrolls were revised down to an increase of 185 000 from the previously reported 215 000.The report is jointly developed with Moody's Analytics.Small businesses with less than 50 employees did the most hiring this month, adding 115 000 jobs. But large businesses of more than 500 workers cut 2 000 jobs."The job market is slowly, but steadily, improving," Mark Zandi, chief economist of Moody's Analytics, said in a statement.By industry,professional and business services firms led gains with 40 000 jobs while the manufacturing sector fared the worst, cutting 3 000 positions.

    

Europe's economic gloom lifts

Business leaders and consumers in the eurozone sent signals in January that the clouds of economic gloom are lifting slightly, marking the third month running of firming optimism, data from the European Commission showed on Wednesday.Confidence indicators are important pointers to how the economy will perform, and the latest figures suggested that optimism is gaining ground in the eurozone, pulled by Germany in particular and overall also by the construction sector.The Commission's eurozone confidence index rose by 1.4 points from the December level to 89.2 points against a background of easing tensions over the debt crisis.And the index for all 27 members of the European Union also rose by 1.4 points to 90.6 points.In the eurozone, the sector of activity where confidence rose most was the construction industry for which the indicator gained 4.6 points. This reflected orders taken and expectations concerning the need for labour.The reading for confidence expressed by consumers also rose by 2.4 points in January.Confidence in the services sector rose by 1.0 point.However, for industry and the retail sector, the indicators were flat.Sentiment about the outlook for employment was less pessimistic in all sectors of activity than has been the case, both in the eurozone and in the European Union.In the eurozone, confidence rose the most in Germany by 2.5 points, in the Netherlands by 1.0 point, and in Spain by 0.5 points.In Italy it was steady and in France it slipped by 0.3 points.US stock index futures showed little reaction to the ADP report, though futures extended declines later in the morning following data that showed the economy unexpectedly contracted in the fourth quarter.The ADP figures come ahead of the government's much more comprehensive labor market report on Friday, which includes both public and private sector employment."The data suggests that jobs growth is accelerating and bodes well for Friday's payrolls report," said Omer Esiner, analyst at Commonwealth Foreign Exchange in Washington.The government release is expected to show hiring held steady in January with 160 000 jobs created.Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.

Obama's popularity highest in 4 years

US President Barack Obama's popularity has hit 60%, the highest level since he first took office four years ago, according to a poll released on Wednesday.The survey by ABC television and The Washington Post was made public just a little more than a week after the president's formal swearing-in was witnessed by an estimated one million people in Washington and millions more across the nation.The pollsters credited public approval of the president's inauguration address for his soaring poll numbers.In that address, Obama embraced a liberal agenda that vowed action during his second term on gun reform, gay rights and the environment, among other issues.But while the poll showed he has broad public support, it also found that his popularity is slightly less than that enjoyed by two other re-elected presidents - Bill Clinton and Ronald Reagan - at the start of their second terms.Obama's favourability rating at the start of this second term is higher, however, than that of his predecessor George W Bush at the same point during his tenure.The 60% popularity represents a 10-point increase since last summer, during the heat of the contentious presidential race against Republican challenger Mitt Romney.Obama has a way to go until he matches his all-time highest popularity numbers 79% achieved just days before he took office in January 2009, the pollsters said.The telephone survey of 1 022 adults was taken between 23 to 27 January and had a 3.5% margin of error.

Israel releases frozen Palestinian funds

Israel said on Wednesday it had released $100m of the tariffs and tax money it collects on behalf of the Palestinian Authority, which were frozen last year as punishment for the UN bid. But an Israeli official said it was a one-off measure to ease the financial crisis faced by the Palestinians and was not a sign that the transfers would be renewed."This decision was taken by Prime Minister Benjamin Netanyahu because of the Palestinian Authority's very difficult financial situation," an official at the premier's office told AFP."But this transfer is temporary and affects only funds owed for one month," he added, speaking on condition of anonymity."The prime minister did not commit to continue these transfers."The Palestinians said Israel's decision to transfer money on a one-time basis was effectively "extortion”."Israel's announcement that it will transfer 400m shekels [$107.31m] of our money on a one-time basis means they will continue to carry out extortion on this issue," Palestinian negotiator Saeb Erakat told AFP."Israel is using our money, which it collects, as a sword hanging over our heads," he said."Israel should pay us our money immediately and the international community should condemn this Israeli piracy and stop it immediately," he added."The transfer of the funds on a one-time basis means the financial and political siege is continuing and that nothing has changed in Israeli politics and Netanyahu's approach."Israel in early December announced it would not transfer tax and tariff funds it collects for the Palestinians in response to their successful bid for upgraded UN membership, a move the Jewish state had fiercely opposed.Every month, Israel transfers tens of millions of dollars in customs duties that are levied on goods destined for Palestinian markets that transit through Israeli ports, and which constitute a large percentage of the Palestinian budget.The transfers are governed by the 1994 Paris Protocols that governs economic agreements between Israel and the Palestinians.But Israel often freezes the transfer of funds as a punitive measure in response to diplomatic or political developments viewed as harmful.The measure has deepened an already dire financial crisis faced by the Palestinian Authority, which has frequently been unable to make payroll for its employees over the last year.In response to Israel's freezing of the funds, the Palestinians have urged Arab nations to activate a promised "safety net" of $100m a month to make up the shortfall.But despite pledging to deliver the money, funds have yet to materialise, leaving the Palestinian Authority unable to pay its thousands of government employees, who are still owed half their salaries from November and all their salaries from December.

NEWS,21.01.2013

Terrorism in Africa set to top G8 agenda

Britain will use its chairmanship of the Group of Eight richest nations to focus on the threat of terrorism following developments in Algeria and Mali, Prime Minister David Cameron said Monday.Cameron said North Africa was becoming a "magnet" for jihadists from other countries, adding that the threat there now outweighed that from Islamist hotbeds in Afghanistan and Pakistan."I will use our chairmanship of the G8 this year to make sure this issue of terrorism and how we respond to it is right at the top of the agenda where it belongs," he said in a statement to parliament on the Algeria hostage crisis.Britain took over the rotating presidency of the Group of Eight richest nations in January and it hosts the summit of G8 leaders at Lough Erne, Northern Ireland, on June 17-18.Cameron said Britain would contribute intelligence and counter-terrorism assets to an "international effort to find and dismantle the network that planned and ordered the brutal assault" on the In Amenas gas field in Algeria.It will also work closely with the Algerian government to learn lessons from the attack, in which three British nationals were confirmed killed and a further three were believed to have died.Cameron said Britain was also looking at whether to provide "transport and surveillance assets" to help the French military mission in Mali in addition to the two transport planes it has already contributed.He said that Britain could send "tens not hundreds" of troops to a new EU training mission for Mali.But Cameron also painted a picture of a "generational struggle" against the "terrorist scourge", saying that it needed both a political and security response."We must frustrate the terrorists with our security, we must beat them militarily, we must address the poisonous narrative they feed on, we must close down the ungoverned space in which they thrive, and we must deal with the grievances they use to garner support," he said."This is the work that our generation faces and we must demonstrate the same resolve and sense of purpose as previous generations have with the challenges that they faced."

Winter chill batters UK businesses

A wintry burst of weather has hit businesses and travellers across Britain for a fourth day on Monday, threatening an unprecedented "triple-dip" recession that could knock the government's economic plans further off track.Commuters fought to get to work as airlines and train operators struggled to deal with a blanket of snow and ice, while some 3 000 schools were closed, forcing parents to stay at home to look after children. Figures this week look set to show the economy shrank again in the fourth quarter of 2012. The snow-induced a loss of working days for manufacturers and builders, allied to falls in business for shops, pubs and restaurants, could now push the first quarter of 2013 into the red also.Even if the economy does turn around later, it would leave the government seeking to dispel fears of slow growth well into next year - with an election due the year after."At a time when retailers are already under pressure, bad weather which keeps people from going shopping is very bad news," said Richard Dodd from the British Retail Consortium body representing the country's major chains."That said, it would have been much worse had it happened over Christmas." Shop owners and workers on a deserted Oxford Street, central London's main shopping destination, said trade had been hit heavily since Friday.Jay Gordon, manager of a hairdresser just off the main thoroughfare said half of his customers had cancelled over the weekend, at a cost of £30-100 per head. "On Saturday, we had 15 no-shows. It's a loss of revenue," he said. Economists said that while retailers may be able to make up the lost sales as customers come back to buy later what they would have bought anyway, the impact on construction and manufacturing is harder to smooth over quickly."Assuming the fourth quarter is as substantially negative as we now fear, we will almost certainly be heading back into recession," Peter Spencer, chief economic adviser to business think tank the Ernst and Young Item Club, told Reuters."When the economy is bouncing along the bottom anyway, a bout of bad weather can easily tip it into negative territory. "OutrageThere was a familiar hum of national outrage at train stations and airports about the struggle to run normal services more than 12 hours after the last snowfall in many areas on Sunday evening. Commuter operators across southern England were operating reduced services and only six of every 10 of those were running on time. British Airways had cancelled 350 flights since Friday, largely at the request of London's Heathrow airport, which has little room to reschedule delayed flights. That reflects a shortfall in infrastructure investment over past years which has fallen behind the country's eurozone neighbours. Operators note, however, the UK has less snow than much of the rest of Europe and less on average now than it did 20 years ago. That was no consolation for 24-year-old Georgina Kourousiakli and Fay Sakellariou from Athens, who missed their flight home by minutes due to train delays on Monday morning. "They don't care about us, we told them we need somewhere to live until tomorrow and they just looked at us and said 'oh'," Georgina said. "We don't have any money to eat ... we can't call home and the internet is 10 pence per minute. "Heathrow has come under heavy criticism before for not handling inclement weather well. PainThe Conservative-led coalition government had lauded numbers for the third quarter of last year which saw Britain emerging from its second recession since the 2008 financial crisis.But that always looked at risk from the gloom amongst consumers who account for two thirds of the economy. They have seen wages fall consistently compared with inflation while also struggling to reduce debts built up in a decade of booming credit growth.A survey on Monday showed the state of most households' finances continued to worsen in January, even if the rate of decline was slightly less pronounced than a month earlier."Concern remains that consumers will be restrained in their spending over the coming months which will limit growth," said IHS Global Insight economist Howard Archer.He noted that snow had helped spur contractions in the first quarter of last year and fourth quarters of 2010 and 2011."With the bad weather looking set to continue well into this week and possibly beyond, the risk of a triple dip recession is growing by the day," he said. The Conservative-Liberal Democrat coalition's central promise after gaining power in 2010 was to eliminate Britain's underlying budget deficit by the end of a five-year term.But that target was reliant on the private sector taking up the slack for some of the harshest cuts in public sector spending since World War Two. So far this year, government borrowing is up 10% due to falling revenues.

Cash crisis affects EU farm policy reform

European Union politicians will scale back or ditch reforms to the farm subsidy system as they seek to mollify powerful farmers' lobbies who are angry at subsidy cuts forced on them by the bloc's debt crisis. With EU leaders likely to agree on a 10% reduction in farm spending from next year, governments and lawmakers want to water down plans to reform the 50-year-old common agricultural policy (CAP). The debate centres on European Commission proposals to impose new environmental requirements on farmers and share out the subsidies more fairly across the 27-country bloc. Member governments and the European Parliament must approve the plans before they become law. Critics of the Commission's reform proposals say dilution is essential to avoid damaging Europe's agricultural productivity. "The proposals would increase unemployment in rural areas and risk deepening the EU's current economic crisis," said Pekka Pesonen, head of EU farm lobby COPA-COGECA. German farm minister Ilse Aigner described the Commission's bid to boost environmental standards by forcing farmers to leave 7% of their cropland fallow as "absurd". Farmers are counting on Aigner and her colleagues to intervene on their behalf. "I believe ministers will go for a lower rate than 7%," Pesonen told Reuters. But reform advocates say farmers' fears are overblown and that they should do more to justify the billions of euros in public subsidies they receive each year. "What I hear from the parliament and member states is dilution, dilution, dilution," said EU Climate Commissioner Connie Hedegaard, who supports plans to make the CAP greener by also requiring more crop rotation and permanent grassland. "Normally farmers are rather proud people. Would it not be better, instead of being on subsidies, to be paid for doing something for the common good?" she said at a conference in Brussels this month. Talks on the European Union's long-term budget for 2014-2020, which began in November and will continue in early February, have already whittled down the total for agriculture to about €360bn ($480 billion). That compares with about €400bn in the current seven-year budget when measured in 2011 prices. While most attention has focused on the overall CAP budget and new green rules, the biggest impact on individual farmers would come from proposals to reduce the inequality in payments. Producers in Italy, Belgium and the Netherlands currently receive more than €400 in direct subsidies per hectare on average, compared with less than €150 per hectare in the EU's Baltic states. And in major beneficiary countries such as France, Italy and Spain, the most productive farms currently receive far more EU cash than the rest, thanks to a link between subsidies and 200-2002 production levels. Proposals in the reform to shift payments towards a flatter, per-hectare rate could cut up to 40 percent of the subsidies going to Europe's biggest grain and livestock producers, officials say. "The rate of direct payments in major producing areas such as the Paris Basin will be significantly reduced," said a Commission source who spoke on condition of anonymity. Larger EU governments, with the support of farm groups and MEPs, are aiming to reduce the extent and pace of redistribution proposed by the EU farm commissioner, Dacian Ciolos. On Wednesday, the European Parliament's agriculture committee - traditionally sympathetic to farming interests - will vote on amendments that would delay the introduction of flat-rate payments beyond the Commission's 2019 deadline. The committee could also delay proposals to liberalise the EU's heavily regulated sugar sector by pushing back the planned phase-out of strict production quotas from 2015 to 2020. "There's no doubt that this is a reform without friends," said Alan Matthews, professor of European agricultural policy at Trinity College Dublin. "There really isn't anyone pushing it apart from Ciolos himself, and the longer it goes on the weaker it gets." Despite the efforts of governments and lawmakers to dilute the CAP reform, however, Matthews said future trends in EU farm output will be determined by factors other than public policy. "I would say the market price environment, biofuel and energy prices and things like climate change are probably more important than what is happening in terms of CAP reform," he said.

Investors to shun tax evading firms

Growing anger at aggressive tax avoidance by big business has prompted ethical investors to consider shunning shares in companies that don't pay their fair share of tax.As governments struggle to balance massive budget deficits caused by the financial crisis, reports that big companies like Apple, Google and Vodafone pay minimal taxes in some big markets have sparked public protests in Europe and the United States. All the companies criticised say they follow the law, and some argue they owe it to investors to pay as little tax as legally possible. But politicians on both sides of the Atlantic have argued such avoidance is immoral and hauled executives into public hearings to explain their tax affairs. Tax authorities in France, Germany and Italy have even launched raids on some high-profile companies' offices. Many investors with a 'socially responsible' mandate say they have long taken account of companies' tax practices when deciding where to invest, but few if any funds have made a point of screening out companies over tax issues, according to more than a dozen industry professionals contacted by Reuters. That may be about to change. FTSE Group, which compiles the share indexes that fund managers in the UK, United States and Asia use to build investment portfolios, said it was looking into excluding companies with what it called overly aggressive tax reduction policies from its ethical index group, FTSE4Good. "Tax is one of the areas which the independent FTSE4Good Policy Committee are considering, among other criteria priorities," a spokesperson said. FTSE did not say when it would reach its decision. The FTSE4Good indexes are one of the benchmarks most commonly used by ethical funds to build their portfolios. European funds invested in socially responsible investments totalled €7 trillion at the end of 2011, according to European Sustainable Investment Forum, an ethical investment industry association. Eleven percent of the $33.3 trillion in assets under professional management in the United States is invested in funds that screen for environmental and ethical factors, according to a 2012 report from the US Forum for Sustainable and Responsible Investment. Jacky Prudhomme and Helena Vines-Fiesta, co-heads of Environmental, Social & Governance research at BNP Paribas Investment Partners, said they were working on a system for screening out companies with inappropriate tax practices. The Paris-based asset manager had €513bn in assets under management as of March 2012. "We are not at this stage in a position to assess tax strategies in a systematic manner due to lack of underlying data. However, we are starting to examine how we can do this in some sectors," Prudhomme said, but did not say which sectors. Charity ActionAid, which has campaigned against multinationals shifting profits beyond the reach of tax authorities in developing countries, said it had been working over the past nine months with fund managers who wanted advice on how to encourage companies to pay their fair share of tax. Tax policy adviser Michael Lewis said the charity planned to publish a guide for investors next month outlining how they could pressure companies on tax. This could, in time, help funds develop a framework. "It could be quite challenging" to come up with criteria, explain them and apply them consistently, said Ryan Smith, head of corporate governance at Kames Capital, which manages the Kames Ethical Equity and Kames Ethical Cautious Managed funds. Lewis said ActionAid had been approached by mainstream funds saying aggressive tax planning may point to risky practices elsewhere. Some investors also consider how far increases in net profit are due to operational improvements, which can be maintained, or to tax management. A robust tax audit could rapidly reverse that kind of profit. "We always make sure we know what taxes the firms we invest in are paying. If they are paying a low tax rate, chances are it's unsustainable," said Charles Heenan, investment director at British fund management firm Kennox. In New York, where fund manager Domini Social Investments said it was looking for ways to rank companies on the basis of their tax policies, General Counsel Adam M. Kanzer said there were difficulties. For one, it could be hard to find stocks to invest in. "Unfortunately, tax avoidance practices are so widespread it is virtually impossible to exclude companies based on this issue," he said.

NEWS,07.12.2012

Ensuring Scotish Sovereignty: Exploring the Public Bank Option

 

The Royal Bank of Scotland (RBS) and the Bank of Scotland have been pillars of Scotland's economy and culture for over three centuries. So when the RBS was nationalized by the London-based UK government following the 2008 banking crisis, and the Bank of Scotland was acquired by the London-based Lloyds Bank, it came as a shock to the Scots. They no longer owned their oldest and most venerable banks.Another surprise turn of events was the triumph of the Scottish National Party (SNP) in the 2011 Scottish parliamentary election. Scotland is still part of the United Kingdom, but it has had its own parliament since 1999, similar to U.S. states. The SNP has rallied around the call for independence from the UK since its founding in 1934, but it was a minority party until the 2011 victory, which gave it an overall majority in the Scottish Parliament. Scottish independence is now on the table. A bill has been introduced to the Scottish Parliament with the intention of holding a referendum on the issue in 2014.Arguments in favor of independence include that it will allow the Scottish people to make decisions for Scotland themselves, on such contentious issues as having nuclear weapons in their seas and being part of NATO. They can also directly access the profits from the North Sea oil off Scotland's coast.Arguments against independence include that Scotland's levels of public spending (which are higher than in the rest of the UK) would be difficult to sustain without raising taxes. North Sea oil revenues will eventually decline.One way budgetary problems might be relieved would be for Scotland to have its own publicly-owned bank, one that served the interests of the Scottish people.  True economic sovereignty means having control over the national currency, credit and debt.It was in that context that I was asked to give a presentation on public banking at RSA Scotland (the Royal Society of Arts) in Edinburgh on Nov. 22.  Among other attendees were a special adviser and a civil servant from the Scottish government.  The presentation was followed by one by public sector consultant Ralph Leishman, director of 4-consulting, who made the public bank option concrete with specific proposals fitting the Scottish context.  He suggested that the Scottish Investment Bank (SIB) be licensed as a depository bank, on the model of the state-owned Bank of North Dakota. Lively debate followed. The SIB is a division of Scottish Enterprise (SE), a government economic development body. SE encourages economic development, enterprise, innovation and investment in business, which is achieved by the SIB through the Scottish Loan Fund. As noted in a September 2011 government report titled "Government Economic Strategy": Securing affordable finance remains a considerable challenge... Evidence shows that while many large companies have significant cash holdings or can access capital markets directly, for most Small and Medium-sized companies bank lending remains the key source of finance. Unblocking this is key to helping the recovery gain traction." The limitation of a public loan fund is that the money can be lent only to one borrower at a time.  Invested as capital in a bank, on the other hand, public funds can be leveraged into nearly ten times that sum in loans. Liquidity to cover the loans is provided by deposits, which remain in the bank available to the depositors. Any shortage in liquidity can be covered by borrowing at low interest from other banks or the money market.  As observed by Kurt von Mettenheim, et al., in a 2008 report  titled "Government Banking: New Perspectives on Sustainable Development and Social Inclusion from Europe and South America" (at page 196): "In terms of public policy, government banks can do more for less: Almost ten times more if one compares cash used as capital reserves by banks to other policies that require budgetary outflows."Leishman stated that the SIB now has investment funds of 23.2 million pounds from the Scottish government. Rounding this to 25 million pounds, a public depository bank could have sufficient capital to back 250 million pounds in loans.  For deposits to cover the loans, the Scottish Government has 125 million pounds on deposit with private banks, currently earning little or no interest. Adding just 14 percent of the General Fund cash and cash equivalent reserves held by Scotland's local governments would provide another 125 million pounds, reaching the needed 250 million pounds, with six times that sum in local government revenues to spare.My assignment was to show what the government could do with its own bank, following the model of the Bank of North Dakota (BND).  n the Saturday following the RSA event, The Scotsman published and article Alf Young that summarized the issues and possibilities so well that I'm taking the liberty of abstracting from it here.North Dakota is currently the only U.S. state to own its own depository bank. The BND was founded in 1919 by Norwegian and other immigrants, determined, through their Non-Partisan League, to stop rapacious Wall Street money men foreclosing on their farms.All state revenues must be deposited with the BND by law. The bank pays no bonuses, fees or commissions; does no advertising; and maintains no branches beyond the main office in Bismarck. The bank offers cheap credit lines to state and local government agencies. There are low-interest loans for designated project finance. The BND underwrites municipal bonds, funds disaster relief and supports student loans. It partners with local commercial banks to increase lending across the state and pays competitive interest rates on state deposits. For the past ten years, it has been paying a dividend to the state, with a quite small population of about 680,000, of some $30 million (18.7 million pounds) a year.Young writes:"Intriguingly, North Dakota has not suffered the way much of the rest of the U.S. -indeed much of the western industrialized world -- has, from the banking crash and credit crunch of 2008; the subsequent economic slump; and the sovereign debt crisis that has afflicted so many. With an economy based on farming and oil, it has one of the lowest unemployment rates in the U.S., a rising population and a state budget surplus that is expected to hit $1.6 billion by next July. By then North Dakota's legacy fund is forecast to have swollen to around $1.2 billion. With that kind of resilience, it's little wonder that twenty American states, some of them close to bankruptcy, are at various stages of legislating to form their own state-owned banks on the North Dakota model. There's a long-standing tradition of such institutions elsewhere too. Australia had a publicly-owned bank offering credit for infrastructure as early as 1912. New Zealand had one operating in the housing field in the 1930s. Up until 1974, the federal government in Canada borrowed from the Bank of Canada, effectively interest-free.From our western perspective, we tend to forget that, globally, around 40 per cent of banks are already publicly owned, many of them concentrated in the BRIC economies, Brazil, Russia, India and China. "Banking is not just a market good or service.  It is a vital part of societal infrastructure, which properly belongs in the public sector. By taking banking back, local governments could regain control of that very large slice (up to 40 percent) of every public budget that currently goes to interest charged to finance investment programs through the private sector. Recent academic studies by von Mettenheim et al., and Andrianova et al show that countries with high degrees of government ownership of banking have grown much faster in the last decade than countries where banking is historically concentrated in the private sector.  Government banks are also less corrupt and, surprisingly, have been more profitable in recent years than private banks.Young concluded his article: "As we left Thursday's seminar, I asked another member of the audience, someone with more than thirty years' experience as a corporate financier, whether the concept of a publicly-owned bank has any chance of getting off the ground here.'I've no doubt it will happen,' came the surprise response. 'When I look at the way our collective addiction to debt has ballooned in my lifetime, I'd even say it's inevitable.'"The Scots are full of surprises, and independence is in their blood. Recall the heroic battles of William Wallace and Robert the Bruce memorialized by Hollywood in the Academy Award-winning movie Braveheart.  Perhaps the Scots will blaze a trail for economic sovereignty in the EU, just as the North Dakotans did in the U.S.  A publicly-owned bank could help Scotland take control of its own economic destiny, by avoiding unnecessary debt to a private banking system that has become a burden to the economy rather than a pillar in its support.

American economy and the Rationalization of Inequality

 

Republicans love touting the benefits of trickle-down economics and are still doing it in the big debate over tax cuts for the wealthy. The idea is simple: The more money the people on top make, the more the people below will benefit from the dripping down of that prosperity. The hidden agenda here, of course, is the rationalization of inequality. By linking the welfare of working-class Americans directly to the prosperity of the rich, the Republicans can protect the insulated interests of corporations and the wealthy without the fear of backlash. In reality, however, the only thing that trickles down in the Republican universe is you-know-what. Our economy is actually a trickle "up" economy instead, based on a lopsided pyramid scheme that ensures the rising up of prosperity rather than the dripping down. Consider the example of investment banking, a white-collar profession that raises money for companies and provides advice for mergers, divestitures, and other strategic alternatives. I chose this example because the pyramid structure illustrated by it is magnified a thousand times in blue-collar environments, the retail industry, and other sectors where wage inequality between rank-and-file workers and senior management is even higher, and so it is telling that even in a relatively upscale business like investment banking, the contrasts are so extreme. The investment banking hierarchy is essentially a large bureaucracy. At the bottom (ignoring maintenance staff like janitors and security guards) are the administrative assistants, who support several bankers at one time and make about $35,000 a year. Above them are the analysts, a cadre of college graduates whose life consists of 120-hour work weeks and an endless stream of menial tasks for $65,000 to $90,000 a year. Next up, and supported by the analysts, are the associates freshly minted MBAs with more than a $100,000 in school loans hanging over them who can look forward to taking home between $100,000 and $175,000 a year. If these young men and women, who work 90-hour weeks while trying to juggle a family, survive long enough to become vice presidents, their compensation can rise to $200,000-$300,000 per year. So far so good, but here is where the gravy train takes a sharp turn towards the absurd. Above the vice presidents are the directors, which is a training zone for the next pay grade (or a graveyard for those who don't have what it takes). Directors rely on the workers below them to do all the grunt work, including research, financial analysis, and client presentations, while they mainly babysit clients and occasionally come up with ideas to pitch to them. Their pay for these relatively cushy tasks ranges from $350,000 to $500,000 per year; but even this is meager compared to what their superiors make. Managing directors, who work even less and spend more time golfing instead, can make anywhere from a million to several million dollars a year. Finally you have the really big fish the CEOs, presidents, executive vice presidents, and others who manage the entire circus, think deep thoughts, and schmooze with politicians to get regulations loosened. What makes these gigs so coveted is not just the fact that few ever manage to leapfrog into that echelon but that the pay scale can jump to tens of millions of dollars (and for celebrity executives, even hundreds) per year for work that is only moderately more challenging than that of the managing directors. It may be lonely at the top, but it's pretty lucrative too.It should be clear from the above that the wealth generated in these organizations gathers mainly at the top of the pyramid, while the people at the bottom, who do a lot of the heavy lifting and are instrumental in building that wealth, receive only a fraction of those riches. Sure, the pay scales in investment banking are pretty good by the standards of other industries, but it is the proportional difference between the compensation at the top and the bottom that makes a difference. This large income gap leads to an exponentially faster accumulation of wealth in a few hands, which in turn widens the prosperity gap even more. In other words, prosperity is not really trickling down but trickling up.The problem with this is obvious. The more wealth trickles up in our system, the more it frustrates those at the bottom without whose efforts that wealth could not be created in the first place. Moreover, since money is a finite resource, disproportionately large compensation for senior executives is ultimately paid for not just by other employees, but by customers (whose pockets that money comes from) and shareholders (who receive less benefit from their investment) as well. In a true trickle-down economy, the benefits of productivity and innovation would be shared fairly by all stakeholders, not just the select few with authority to dictate compensation and how the profits of a company are distributed. So while the idea of such a system might be appealing conceptually, it is not the way our economy really works, and if the Republicans really believe in trickle down, they should stop trying to whitewash the exploitative pyramid schemes of their wealthy donors and come up with a real model for equality instead.