G20 wary of scaring markets
The Group of 20 nations, wary of renewed market volatility, pledged on Friday to shift policy carefully and communicate clearly as they seek to chart a course to recovery.
A final draft communique prepared for G20 finance ministers and central bankers meeting in Moscow said an action plan to boost jobs and growth, while rebalancing global demand and debt, would be readied for their leaders in September.
"We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing," the draft, obtained. "Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated."
Ministers will review the text over dinner with the global sell-off in stocks and bonds and a flight to the dollar, caused by a plan to withdraw US monetary stimulus, uppermost in their minds.
G20 leaders will meet in St Petersburg in September.
A paper that International Monetary Fund staff prepared for the Moscow meeting warned financial market turmoil could deepen unless policymakers were careful.
"The current market turbulence could continue and deepen. Growth could be lower than projected due to a protracted period of stagnation in the euro area, and risks of a longer slowdown in emerging markets have increased."
"The eventual exit from low rates and unconventional monetary policy in advanced economies could pose challenges for emerging economies, especially if it proceeds too fast or is not well communicated."
Ben Bernanke's announcement two months ago that the Fed may start to wind down its $85bn in monthly bond purchases sparked a panicky sell-off, particularly in emerging markets.
Investors were calmed by testimony to Congress this week by Bernanke, who is not in Moscow, although he said the exit plan from money-printing remained on the cards.
"Clearly there is a fear among emerging market economies that after being flooded by capital inflows ... we could be on the verge of a reversal of that flood," a European Central Bank official said. "So it is important to dispel that worry."
China shift
G20 sources said China would be urged to encourage domestic demand-driven growth and allow greater exchange-rate flexibility as part of wider efforts to rebalance the global economy which features a huge Chinese surplus and matching US deficit.
"We are determined to continue progress with rebalancing of global demand, which requires internal rebalancing through structural reforms and exchange rate flexibility," the draft said.
Beijing offered an early olive branch, removing a floor on the rates banks can charge clients for loans, which in turn should reduce the cost of borrowing for companies and households.
The G20 took the lead in the 2008-09 financial crisis and now faces a multi-speed global economy in which only the United States appears to be nearing a self-sustaining recovery.
China, for years the engine of global growth, is suffering a slowdown amid doubts over the stability of its financial system, Japan has only recently embarked on a radical fiscal and monetary stimulus experiment, and Europe's economy is more stop than go.
Bank of Japan Governor Haruhiko Kuroda said he would "strongly pursue" quantitative policies to lift growth and end deflation.
"Japan has just started qualitative and quantitative easing on April 4. It's been only 3-1/2 months, and we need to proceed with it to achieve our 2% price stability target," he said.
Tokyo has so far been given a free pass at international gatherings from countries which had previously urged it to get growth going. But there is growing disquiet about the lack of progress on structural reforms that were promised in tandem.
The Brics emerging markets caucus Brazil, Russia, India, China also met on Friday but joint measures to limit the fallout of a stronger dollar remained on the drawing board.
More to boost growth
Washington is putting increasing pressure on Europe to do more to foster growth. Germany, in contrast, is seeking internationally agreed debt reduction goals.
The communique referred to credible medium-term fiscal strategies but said they should be flexible. On growth, it was more definite, saying:
"Large surplus economies should consider taking further steps to boost domestic sources of growth, while deficit economies should implement measures to improve competitiveness."
G20 labour ministers held a joint session with finance ministers earlier, putting the jobs crisis in Europe where youth unemployment is above 50% in debt-strapped Greece and Spain at the centre of the debate.
The communique pledged to boost jobs and growth via a "comprehensive" series of reforms to raise employment and productivity.
The G20 also backed a fundamental tax rethink that takes aim at the loopholes used by multinational firms and responds to widespread anger among voters hit with higher tax bills to cover soaring national debts.
The group endorsed a tax action plan drawn up by the Organisation for Economic Co-operation and Development (OECD) that said the existing system didn't work, especially when it came to taxing companies that trade online.
The plan is one of the major 'deliverables' that will go to the St. Petersburg summit hosted by President Vladimir Putin.
G20 backs reform of corporate taxation
The G20 backed a fundamental rethink of the rules on taxing multinational corporations on Friday, taking aim at loopholes used by companies such as Apple and Google to avoid billions of dollars in taxes.
The group of leading economies released an action plan drawn up by the Organisation for Economic Co-operation and Development (OECD) that said the existing system didn't work, especially when it came to taxing companies that trade online.
Large budget deficits and public anger at inter-company structures designed to channel profits into tax havens has prodded governments to act.
Google, Apple and others say they follow the law wherever they operate and pay what tax is due, while tax specialists point out that companies have a duty to shareholders to organise their affairs in a tax-efficient way within the laws set by politicians.
Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy, said governments' frustration with companies' aggressive tax avoidance had created a "once in a century" opportunity to overhaul the rules, which date back to the League of Nations in the 1930s.
Currently, tax systems respect inter-company contracts even if they evidently seek to shift profits out of countries where they are earned into low or no-tax jurisdictions. New rules will seek to put more emphasis on economic substance, the Paris-based think tank said.
"We clearly have reached the point where the governments don't care any more about taboos, and they just say we cannot be bound by pure contractual arrangements. It's not possible to only allocate the profit through only contractual arrangements," Saint-Amans told reporters.
The OECD, which advises its mainly rich members on tax and economic policy, has two years to come up with specific measures that can be adopted internationally.
Business concerned
Business lobby groups such as the United States Council for International Business (USCIB) and Britain's CBI dispute that there is a broad problem with tax avoidance and say measures to address it could hit job creation, trade and innovation.
Yet non-governmental organisations and those representing smaller or domestically focused companies support the OECD project.
"EEF welcomes today's report and urges the UK and the G20 generally to respond positively to its central recommendations," said Steve Radley, Director of Policy at EEF, which represents many small and medium-sized British manufacturers.
Saint-Amans noted that all OECD members including Switzerland, Ireland and the Netherlands, which have been described as tax havens by lawmakers on both sides of the Atlantic, had backed the action plan.
The report identified a raft of loopholes used by companies in the technology, pharmaceutical and consumer goods sectors.
These include the practice of companies not creating tax residences or 'permanent establishments' in countries where they have major operations.
The OECD also criticised the corporate practice of designating units in tax havens as holders of group funds, patents or brands that can then be lent or licensed, for generous fees, to affiliates in countries where customers or factories are located.
International treaties designed to avoid double taxation of profits earned from cross-border activities but which have been used to avoid any taxation, are also under scrutiny. Saint-Amans said protocols to amend existing treaties could be developed to stop such "double non-taxation".
He added that representatives of OECD and G20 members who helped draft the plan had rejected an idea favoured by some non-governmental groups that would split multinationals' profits among the different countries where they operate, according to an agreed formula, with each country assessing its share of profit.
Such a system exists in the United States for the application of state taxes, but countries agreed it was too complex to adopt internationally.
Some countries had proposed a reform of corporate income tax whereby companies would be taxed where their customers were based, but the group did not accept this idea.
China in $5bn Sea gas drive
Chinese state-run oil companies hope to develop seven new gas fields in the East China Sea, possibly siphoning gas from the seabed beneath waters claimed by Japan, a move that could further inflame tensions with Tokyo over the disputed area.
Beijing had slowed exploration in the energy-rich East China Sea, one of Asia's biggest security risks due to competing territorial claims, but is now rapidly expanding its hunt for gas, a cheaper and cleaner energy to coal and oil imports.
State-run Chinese oil and gas firm CNOOC Ltd will soon submit for state approval a plan to develop Huangyan phase II and Pingbei, totalling seven new fields, two industry officials with direct knowledge of the projects.
The approval would bring the total number of fields in what is called the Huangyan project to nine.
China is already working on Huangyan I which has two fields approved. The Huangyan project is expected to cost more than 30bn yuan ($4.9bn), including 11 production platforms now under construction at Chinese shipyards.
If approved, the seven new gas fields would not see a big jump in China's total gas output, supplying only a fraction of last year's 106 billion cubic metres (bcm) and dwarfed by operations in the disputed South China Sea and Bohai Bay off north China. Chinese geologists said gas deposits in the East China Sea region were much smaller and more scattered.
The greater issue is the political risk if Beijing approves the new gas fields. Tensions over the East China Sea have escalated this year, with Beijing and Tokyo scrambling fighter jets and ordering patrol ships to shadow each other, raising the fear that a miscalculation could lead to a broader clash.
"It's a sign of impatience on the side of the Chinese, stemming from a lack of movement on the Japanese side on the gas fields issue," said Koichi Nakano, associate professor of political science at Sophia University in Tokyo.
China and Japan in 2008 agreed to jointly develop hydrocarbons in the area, but Tokyo wishes to settle the issue of maritime boundaries before developing the gas fields.
"The question is what will be Japan's response and whether they would be able to talk China out of a unilateral move," said Nakano. "But escalation of tensions leading to a war? I don't think so. The Americans will be watching this situation with grave concern and may play a role of a mediator here."
A spokesperson for Japanese Prime Minister Shinzo Abe said: "Our understanding is that Japan and China should continue to have dialogue on the issue of joint exploitation of this area, so any unilateral action should not be accepted".
Even if the National Development Reform Commission gives approval for the new gas fields, the pace of the development could be determined by China's Foreign Ministry which requests oil companies to seek its approval before every drilling. Such permission may be influenced by tensions with Japan at the time.
Major east china sea expansion
China and Japan disagree on where the maritime boundary between them lies in the East China Sea. Beijing says its activities are in the Chinese territories, while Tokyo is worried the Chinese drilling near the disputed median line would tap into geological structures in its waters.
Japan lodged a protest early this month after detecting well construction works at Huangyan I about 26 kms (16 miles) west of the disputed median line. China's foreign ministry rejected the protest as a baseless, saying Beijing had the right to drill in its sovereign waters.
U.S. Energy Information Administration estimated in 2012 that the East China Sea has between 1 and 2 trillion cubic feet (28-57 bcm) of proven and probable natural gas reserves, a modest gauge versus estimates by Chinese sources at up to 250 tcf in undiscovered gas resource.
If approved, the new gas fields would supply China's manufacturing hub of Zhejiang province, about 400 km (249 miles) away on the east coast, with production slated to start in the fourth quarter of 2015, said the officials.
The fields would have a combined annual production capacity of nearly 4 bcm, up from the region's current output of less than 1 bcm, and would account for about 2 percent of China's estimated gas output by the end of 2016.
CNOOC and partner Sinopec Corp are already developing Huangyan I, which was officially approved by the National Development & Reform Commission in June 2012 and is due to start producing gas in September next year. Also on the planning board is Pingbei II, expected to come on line in 2016.
CNOOC media officials declined to comment on the new developments and industry sources quoted for the story declined to be identified due to the sensitive nature of the topic.
China fast-tracking hunt for gas
China, the world's top energy user, is on a fast track to boost the use of natural gas, with demand for gas forecast to grow more than four fold by 2030 from the 147 bcm last year. China is the world's fourth biggest gas consumer.
China first started pumping gas in early 2006 from the Chunxiao field, part of the massive Xihu trough, but territorial disputes have hindered an industry keen to explore and develop the region, Chinese industry experts said.
"China has made compromise, having slowed down the works quite a few years," said a state oil official, "The cards are in the hands of Chinese, as companies are capable of developing (this area) after all the explorations done over the years."
China's plan to expand East China Sea operations comes after a near six-year lull in investment in the area, since the 2008 agreement to jointly develop hydrocarbons in the area.
"Since 2008 when the two nations reached a consensus for joint development, Japan has barely made any sincere diplomatic moves towards that direction...It seems that Japan wants to settle the boundaries first before moving to cooperations, which is totally unrealistic," said Liu Junhong, research fellow at China Institutes of Contemporary International Relations.
Under the proposed expansion plan, Huangyan II, which is adjacent to the disputed maritime border, would consist of two gas fields. Huangyan I has two fields.
Pingbei, an uncontested area located in the western side of the Xihu trough, would have three fields under phase I and another two under phase II.
Wall Street wary as firm bets on dagga
In the sparse Seattle offices of Privateer Holdings, Brendan Kennedy grabs an iPad to show how his bet on legal marijuana is already paying dividends in the form of a Google results page for "blue cheese."
When Web users search that term, high on the list is a link to reviews of the pot strain "blue cheese" on Leafly.com, the medical cannabis website Privateer bought a year-and-a-half ago and which it calls the Yelp of weed.
"We've got Wikipedia blue cheese and pictures of blue cheese, and the third thing you see is the 'blue cheese' strain on Leafly," Kennedy said as he displayed the Google results page. He says Leafly produces revenue of over $100 000 a month.
Popular interest in marijuana and moves by Washington state and Colorado to legalise recreational pot have led Kennedy's two-year-old private equity firm and a handful of politically connected investors to dive into the pot business. The drug remains illegal under federal law.
Privateer this week said it closed a $7m first round of fundraising. It also named to its board of directors Michael Auerbach, an investor with ties to former US secretary of state Madeleine Albright.
A next round of Privateer fundraising to begin in the fall will be not less than $25m, Kennedy and Auerbach said.
With annual marijuana sales both on the black market and in 18 states that allow the drug as medicine estimated at $20bn nationally, according to Harvard economist Jeffrey Miron, businesses are seeking legal avenues to enter the industry.
Still, the $7m raised by Privateer is small by the standards of private equity firms, which typically raise hundreds of millions of dollars per fund.
"The obstacle is it's not a legal product yet... It's not legal under federal law," Miron said. "That's a huge impediment to being able to earn a profit or keep a profit."
Apart from Privateer, the only other fund raising money with the sole purpose of capitalising on the fast-growing pot industry is Emerald Ocean Capital, a division of Southern California-based venture capital firm Ghost Group, said Josh Rosen, a former analyst at Credit Suisse who co-founded cannabis retailer consultant 4Front Advisors.
Rosen said Privateer appears to be the larger of the two.
2014 start
Washington state and Colorado are still tweaking their rules for the recreational-use pot business, which is slated to be up and running in both states next year.
Privateer says it will insulate itself from the risk of federal prosecution by investing in pot-related businesses not directly tied to US production, distribution or sale of the drug.
"I'm not about to invest my personal funds in something that could get shut down tomorrow," said Auerbach, a senior adviser to global strategy firm Albright Stonebridge Group, which is co-chaired by Albright.
Auerbach said he has not spoken to Albright about pot, but both he and Kennedy, a Yale MBA graduate, have lobbied members of Congress for a more tolerant federal stand on cannabis.
A US department of justice representative declined to comment on groups investing in pot-related businesses.
Kennedy said Privateer, which has raised funds from family offices and high net worth individuals, will look at investing in everything from light designers for indoor cannabis growing to makers of harvesting equipment and trimmers.
Others are making bolder choices. A senior political aide in Washington state, who declined to be named, hopes to leave his job to build a marijuana farm in wine-producing Walla Walla. He said he and several co-investors had pooled $250 000 and hoped for $2.3m more from a venture capitalist.
In May, former Microsoft executive Jamen Shively announced plans, criticised as unrealistic because of the federal ban, to create a US marijuana brand. He drew attention for winning political support from former Mexican president Vicente Fox.
Kevin Sabet, co-founder of Project SAM which opposes pot legalisation, said the entry of large investors in the market was worrisome. "This is about profit maximisation based on addiction," he said.
More men happy to be ‘house husbands’
More and more men seem to be happy to be “house
husbands”.
It is estimated that more than four in ten women are now the main breadwinner in their home. They claim more of the men in their lives are happy to merely stay at home.
A survey done in the UK by an insurance company LV= shows that about 26% of women earned more than the men in their lives twenty years ago. This figure has now increased to 41%.
The survey found that more than 70% of women believe more men are happy to take on the role of house husband or stay-at-home dad.
At the same time, it turns out 6% of men openly resent earning less than their female partners. About 10% of those men who earn less than than their partners, actually still tell other people that they earn more.
About 30% of the women surveyed indicated that their partner was unemployed due to the economic crisis.
According to Mark Jones of LV= it is a good thing that antiquated stereotypes are changing.
Recent official figures in the UK showed that the number of stay-at-home mothers had fallen to a record low in 2012. There are now about two million women in the UK in this category.
The overall number of working women has increased a lot since the start of the financial crisis in 2008. Over the same period the number of stay-at-home fathers has almost doubled to 209 000.
In the US four in ten households have women are the main earners, according to The Guardian. The majority of these are single mothers and not well-off.
In South Africa the 2011 Census showed the number of women breadwinners is increasing, but the average South African household is still headed by a man.
It is estimated that more than four in ten women are now the main breadwinner in their home. They claim more of the men in their lives are happy to merely stay at home.
A survey done in the UK by an insurance company LV= shows that about 26% of women earned more than the men in their lives twenty years ago. This figure has now increased to 41%.
The survey found that more than 70% of women believe more men are happy to take on the role of house husband or stay-at-home dad.
At the same time, it turns out 6% of men openly resent earning less than their female partners. About 10% of those men who earn less than than their partners, actually still tell other people that they earn more.
About 30% of the women surveyed indicated that their partner was unemployed due to the economic crisis.
According to Mark Jones of LV= it is a good thing that antiquated stereotypes are changing.
Recent official figures in the UK showed that the number of stay-at-home mothers had fallen to a record low in 2012. There are now about two million women in the UK in this category.
The overall number of working women has increased a lot since the start of the financial crisis in 2008. Over the same period the number of stay-at-home fathers has almost doubled to 209 000.
In the US four in ten households have women are the main earners, according to The Guardian. The majority of these are single mothers and not well-off.
In South Africa the 2011 Census showed the number of women breadwinners is increasing, but the average South African household is still headed by a man.
Britain plans tax breaks for shale gas
The British government unveiled what it described as the world's most generous incentives for shale gas on Friday, offering tax breaks to drive investment in a sector that has already transformed the US energy market.
Finance minister George Osborne said the government wanted to create the right conditions in Britain for industry to unlock the potential of shale gas.
"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that," he said.
The government is looking to shale gas to reduce Britain's reliance on natural gas imports and hopes it will also lower consumers' energy bills.
The British shale industry is still in its infancy, however.
Experts say it is difficult to estimate how much shale could be developed commercially, and their estimates vary widely.
Utilities analyst Peter Atherton at Liberum Capital said the new tax allowance could attract more companies.
"It (shale exploration and production) is a tough thing for industry to do, costing from tens to hundreds of millions of pounds, and with a fair amount of technical risk and reputational aggravation in the early years," he said.
Infant industry
The proposed allowance for shale gas, subject to consultation for three months, would reduce the tax payable on income from shale production to 30% from 62% for oil and gas.
The tax break is based on existing allowances for oil and gas production aimed at supporting almost £14bn ($21bn) of investment next year.
Called the shale gas "pad" allowance, it would likely go into the finance bill next year and last for the lifetime of the shale well, a UK Treasury spokesperson said.
British exploration firms IGas and Cuadrilla are at the exploration stage in shale gas, while other energy firms such as France's Total are watching developments with interest.
Shares in Alkane Energy, which has extraction licences in the Bowland area, were up 4.6% at 40.4 pence at 13:42, while IGas was 5.58% higher at 123 pence.
Shares in Centrica, which has a stake in one of Cuadrilla's exploration licences, was down 0.2 pence to 380.9 pence.
Shale gas is natural gas trapped in dense rock formations. The process of fracking, in which water and chemicals are pumped deep underground to break open the rocks, has led to fears it could cause earthquakes and contaminate drinking water.
Last month, the British Geological Survey estimated the rocks of the Bowland shale area in northern England held 1 300 trillion cubic feet of gas, double the amount previously forecast.
However, it is still uncertain how much gas can be extracted and how many shale wells developed.
A report by the House of Commons' Energy and Climate Change Committee said this week: "It is impossible to determine reliable estimates of shale gas in the UK unless and until we have practical production experience."
Experts say there should be a period of at least two years of exploratory drilling to see whether UK shale is a viable business.
Jenny Banks, energy and climate change specialist at WWF-UK, said encouraging more fossil fuel investment was at odds with tackling climate change.
To help placate local opposition to shale, the industry will have to provide communities near exploratory wells with £100 000 sterling ($152,000) in benefits and 1% of the revenue from each production site, the government said last month.
Detroit files for bankruptcy
Detroit on Thursday became the largest city in US history to file for bankruptcy protection after decades of decline and mismanagement rendered the home of the nation's auto industry insolvent.
The bankruptcy is expected to make it harder for municipalities in Michigan - and across the country - to borrow money by undermining confidence in what used to be among the most trusted bonds available.
Michigan Governor Rick Snyder said there was no other option.
"The fiscal realities confronting Detroit have been ignored for too long," Snyder said in a press release.
"I'm making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future."
Once the fourth largest US city, Detroit has seen its population shrink by more than half - from 1.8 million in 1950 to 685 000 today - as crime, flight to the suburbs and the hollowing out of the auto industry ate away at its foundations.
"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder said in a letter accompanying the court filing.
"The only feasible path to a stable and solid Detroit is to file for bankruptcy protection."
Earlier this year Snyder appointed an emergency manager with a background in bankruptcy to restructure the Motor City's finances.
He said he had "very much hoped" the move would help Detroit avoid bankruptcy, but that now it is time to "face the fact that the City cannot and is not paying its debts as they become due and is insolvent."
Detroit stopped making payments on some of its $18.5 billion of debt and obligations last month as the emergency manager sought relief from creditors.
But the city's employee pension plans - which are owed some nine billion dollars filed a lawsuit to prevent any cuts to retirement benefits.
The bankruptcy filing places that case on hold and comes days before what could have been a key hearing.
It will be up to a federal judge to determine if Detroit is allowed to restructure and even shed its obligations in a Chapter 9 bankruptcy.
"You can expect challenges right out of the box," said bankruptcy lawyer Douglas Bernstein of Michigan-based Plunkett Cooney.
It could take years for the case to be resolved, he warned.
"One of the biggest challenges is that there haven't been very many municipal bankruptcies in the history of the bankruptcy code so there's not a lot of guidance," Bernstein told AFP.
Pension funds are protected by the state constitution, but filing for bankruptcy in federal court ought to give Detroit a way out of its pension obligations because federal laws have precedence.
Snyder listed a host of problems that prove Detroit cannot meet its obligations to its citizens while weighed down by debt.
The homicide rate is the highest in nearly 40 years and, for more than two decades, Detroit has been on the list of the most dangerous cities in the United States.
People have to wait an average of 58 minutes for the police to respond to their calls, compared with an average of 11 minutes nationwide.
There are 78 000 abandoned buildings scattered across the city, and 40% of the streetlights don't work.
A lack of funds for maintenance and repairs means only a third of the city's ambulances work and police cars and fire trucks are also in poor condition.
The city has been borrowing money to pay its bills for more than a decade, a short-sighted move that raised costs.
Some 38 cents of every city dollar was going to debt repayment and obligations like pensions, and that was projected to hit 65 cents on the dollar by 2017.
The city's tax rate has reached its legal limit and even if it could raise rates, residents can't afford to pay more, Snyder said.
Chevron gets green light for shale gas
US oil giant Chevron has obtained permits to explore for shale gas in Eastern Romania, the Romanian environmental agency said on Friday, despite strong local opposition to the technique known as fracking.
"The environment protection agency of Vaslui county, in north-eastern Romania, has delivered an environmental permit to Chevron to build exploration wells," the agency said.
The permits will allow Chevron to prospect in three villages in this impoverished rural area.
Thousands of people took to the streets of Barlad in the last few months to say "no to shale gas".
In May, the company was granted permits to explore for shale gas on Romania's Black Sea coast.
Shale gas drilling has fuelled controversy around the world, and the technique used, hydraulic fraction or fracking, has been banned in France and Bulgaria.
Fracking is a process whereby liquid products, including water and chemicals, are pumped deep into oil or gas-bearing rock to cause fractures and release hydrocarbons.
A 2012 study by Duke University in the US state of North Carolina showed that drinking water wells are at risk of contamination from fracking.
Chevron maintains that all its activities "have, and will continue to be conducted in compliance with Romanian laws, EU (European Union) requirements and stringent industry standards."
Romania's centre-left coalition, in power since May 2012, had attacked the previous government's decision to grant Chevron and other oil groups concessions to prospect for shale gas.
But Ponta changed his opinion this year and said he was in favour of exploration.
