Monday, June 29, 2015

Bill Gates Interview: Tax, Climate and Microsoft

Microsoft co-founder and Bill & Melinda Gates Foundation co-chair Bill Gates talks to FT deputy editor John Thornhill about philanthropy, tax, energy and health innovation, and Microsoft’s record. Mr Gates was in London to speak at an FT 125 event.


Ireland: Mortgage lending slowdown continued in May; 12 month total at 1979 level

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Ireland: The 2015 slowdown in mortgage lending continued in May and the 12-month total of just over 30,000 for new and second hand houses compares with the level in 1979.

There were 2,461 mortgage approvals per month in the three months ending (3 month moving average) May 2015, of which 2,215 were for house purchase according to the Banking and Payments Federation.

The number of mortgage approvals rose by 20.6% compared with the three months ending May 2014 and increased by 4.6% compared with the three months ending April 2015. This is the 25 the consecutive month of year-on-year growth.

Re-mortgage/top-up continued to grow on a year-on-year basis.

Some €452m in mortgages was approved per month in the three months ending may 2015. The value of mortgage approvals rose by 26.3% year-on-year and by 2.5% when compared with the three months ending April 2015. The value of house purchase mortgage approvals grew by 22.7% year-on-year to €421m.

Conall Mac Coille, chief economist at Davy, commented:

Mortgage approvals grow by 12% in year to May 2015: New data from the Banking and Payments Federation, released this morning, suggest the slowdown in mortgage lending has continued into May. There were €447m mortgage approvals for house purchase in May, up from €391m in April. However, this means mortgage approvals are only up 12% on the year compared with 56% annual growth in 2014 and 60% in Q1 2015. There were 2,347 approvals in May, up 7.4% on the year. The average loan approval in May was €190,456, down from €195,658 in Q1.

Mortgage approvals growth slows from 60% expansion in Q1: In our recent report on the Irish housing market, we forecast that mortgage lending for house purchase would expand by 22.7% to €4.5bn in 2015, up from €3.7bn in 2014 and €2.4bn in 2013. This represented a slowdown from the 55% rise in 2014.

Year-to-date, mortgage approvals have equalled €2bn, up 36% from the €1.4bn of approvals in the same period of 2014. However, the first half of 2015 comprised two very different quarters: lending growth was exceptionally strong in Q1 with approvals up 60%; in contrast, growth has slowed markedly to 12% in Q2.

Potential borrowers may have brought forward approvals into early 2015, anticipating tighter credit conditions as the new Central Bank mortgage lending rules came into force. We estimate that 28% of mortgage loans in 2014 would have breached the limits, in excess of the 15% allowed to do so. That said, half these borrowers were first-time buyers close to a 90% Loan-to-Value (LTV), who would have faced only a slightly lower LTV ratio. It will probably be H2 2015 before the impact of the rules on actual lending becomes clear.

Overall, the sharp slowdown in mortgage approvals in Q2 2015 suggests that there are downside risks to our €4.5bn forecast for mortgage lending. However, it is not yet clear if the slowdown in Q2 is temporary after an exceptionally strong Q1. Residential property market transactions were still up 33.7% in April. That said, the full impact of the limits on high LTV and Loan-to-Income (LTI) mortgages on actual lending is not yet clear."

Global Economy: Central banks' bank warns "unthinkable" reflects broader malaise; May become new normal

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Global Economy: The Bank for International Settlements (BIS), the oldest international financial organisation, which has a membership of 60 central banks, warned at the weekend that an unprecedented period of ultra-low interest rates mask severe weaknesses in the global economy, which risks leading to the next financial crisis.

The BIS says such low rates are only the most obvious symptom of a broader malaise, despite the progress made since the crisis. "Global economic growth may now be not far from historical averages but it remains unbalanced. Debt burdens are still high, and often growing, relative to output and incomes. The economies hit by a balance sheet recession are still struggling to return to healthy expansion. In several others, financial imbalances show signs of building up, in the form of strong credit and asset price increases, despite the absence of inflationary pressures. Monetary policy has taken on far too much of the burden of boosting output. And in the meantime, productivity growth has continued to decline."

"There is something deeply troubling when the unthinkable threatens to become routine," the BIS adds in its 85th Annual Report, released Sunday. In its main economic review of the year, the BIS calls for a shift to a longer-term focus in policymaking, with the aim of restoring sustainable and balanced growth.

The report says the global economy has been growing not far away from historical average rates. Lower oil prices have provided a welcome boost, and dollar appreciation has shifted growth momentum from stronger to weaker economies. But the global expansion remains unbalanced, debt levels and financial risks are still too high, productivity growth is too low, and the room for manoeuvre in macroeconomic policy has continued to narrow.

The most visible symptom of these tensions is that, globally, interest rates have been extraordinarily low for an exceptionally long time, against any benchmark. "In particular, the fall of sovereign bond yields into negative territory has been unprecedented and has stretched the boundaries of the unthinkable."

Understanding the underlying causes of these tensions is proving exceedingly difficult. A key reason for these tensions, argue the BIS authors, has been a failure to come to grips with how financial developments interact with output and inflation in a globalised economy. For some time now, policies have proved ineffective in preventing the build-up and collapse of hugely damaging financial imbalances. These have left long-lasting scars in the economic tissue.

The report also casts light on two underappreciated aspects of the problem. By misallocating resources, financial booms can sap productivity both as booms unfold and following the crisis they leave in their wake. And the international monetary and financial system has amplified financial imbalances by transmitting exceptionally easy monetary and financial conditions to countries that did not need them.

The US Federal Reserve is expected to become the first central bank in the rich world to raise interest rates since 2008. Wall Street analysts expects the Fed to tighten monetary policy later this year, but at present the policy makers do not even know now if that will happen, while the Bank of England would be expected to follow in 2016. The European Central Bank and the Bank of Japan are currently involved in quantitative easing programs — bond-buying that is commonly termed money printing — to boost economic activity.

The BIS report authors write:

The right response is hard to implement. The policy mix will be country- specific, but its general features are not. What is required is a triple rebalancing in national and international policy frameworks: away from illusory short-term macroeconomic fine-tuning towards medium- term strategies; away from overwhelming attention to near-term output and inflation towards a more systematic response to slower-moving financial cycles; and away from a narrow own-house-in-order doctrine to one that recognises the costly interplay of domestic-focused policies."

They add that an essential element of this rebalancing is to rely less on demand management policies and more on structural ones, so as to abandon the debt-fuelled growth model that has acted as a political and social substitute for productivity-enhancing reforms. The dividend from the oil price drop provides an opportunity that should not be missed. Monetary policy has been overburdened for far too long. It must be part of the answer but cannot be the whole answer. Otherwise, the danger is that the previously unthinkable becomes accepted as the new normal.

Monday, June 22, 2015

Greece needs to raise both exports and foreign direct investment

Angela Merkel, German chancellor, meets Alexis Tsipras, Greek prime minister, Brussels, Feb 12, 2015.

Bank runs returned to modern economies from the outbreak of the financial crisis in 2007 and about €100bn in deposits have been moved from Greek banks since 2010 with the European Central Bank offsetting the loss in liquidity by lending to Greek banks.

Remember Northern Rock — the first bank run in Britain since 1866? The panic was prompted by Bank of England's confirmation in Sept 2007 that it was in the process of saving the mortgage lender.

A decade after German hyperinflation, the accelerating collapse of the American banking system in the weeks leading up to the inauguration of the new president on March 4, 1933, also cast a long historical shadow.

In the boom years countries like Greece and Ireland appeared to be a lot richer than they were — Ireland remains poorer than Italy on a per capita basis. Greece's challenge is that it is both a very poor exporter and a poor performer in inward foreign investment.

It would likely take up to 20 years of good governance to fix the Greek economy and because there does not appear to be support in the country for exiting the euro, foreign investment in for example the tourism sector is required to compete with neighbours like Turkey to justify a price premium.

In the short to medium term, the debt burden is not a priority issue. Good governance is:

1. Zsolt Darvas of Bruegel estimated that net interest expenditure was at 2.6% in 2014 when allowing for the fact that Greece did not pay any interest on some of the bailout loans and got refunds from the ECB and national central banks;

2. Separate to the bailout, Greece receives a net 3% of GDP annually in grants and subsidies from the EU budget;

3. The IMF said last year that recovery of Greek exports has been notably weak relative to other “peripheral” euro area economies such as Portugal or Spain. Exports from Greece had grown by only about 1/3rd the growth rates of Portugal and Spain since the trough of 2009-10. Excluding tourism and oil (which comprise about 2/3rds of total exports), the recovery of exports has been even less over the same period.

4. In 2013 about 40% of Greece's goods exports were fuel as it has a lot of refining capacity but it is not a significant oil & gas producer;

5. Shipping services exports have low value added as most of the crews are from outside Greece;

6. Tourism accounts for almost a quarter of total exports compared with 18% in Portugal and 16% in Thailand — more detail here;

7. Despite creditor repayments and depositor flight, the net cash flow from Europe has been positive since 2010;

8. It is a huge challenge to change from a kleptocracy but there is evidence of improvement in tax administration and the World Bank now ranks Greece with Tunisia in its key Doing Business index for 2015 which has Greece at 61 of 189 countries — up from 109 in 2010.

9. Pensions have also been reformed and outlays were among the highest in Europe at 13.5% of GDP in 2009 and rising to 17.5% of GDP in 2012 because of the fall in output. Greece’s creditors are now seeking changes that will yield annual savings of 1% of GDP by 2016. They want health contributions to rise from 4% to 6% on average and  subsidies for early retirement cut.

10. Per capita real GDP by US state in 2014 ranged from a high of $66,160 in Alaska to a low of $31,551 in Mississippi. Per capita real GDP for the US was $49,469.

11. Actual Individual Consumption per capita, a measure of material welfare of households adjusted for price differences which is a proxy for standard of living, had an index value of 106 in the euro area in 2014 and 100 in the EU28, Germany was at 123, Italy 98, Ireland 93, Spain 90 and Greece and Portugal at 83.

Slovakia was at 74 and Robert Fico, prime minister, said earlier this year that he would only accept concrete promises from Athens that ensure it “will behave in a way that will guarantee that in 10, 15, 20 years, Greece will be able to pay [back] what they get.” The former communist said: “There is no possibility to cut debt in itself...why should the Slovakian people pay some proportion of their debt?”

12.Not only was Greece admitted to the euro system in 2001, in breach of budget rules with public debt in excess of 100% of GDP, it had run a deficit every year since 1974 (France was in the same boat from 1975).

From the start Greek data was unreliable and big revisions were regular.

Between 2001-2008, Greece’s reported budget deficits averaged 5% per year, compared to a Eurozone average of 2%, and current account deficits averaged 9% per year, compared to a Eurozone average of 1%.

Growth was above the Eurozone average thanks to spending on credit.

13. Every poor country without its own natural resources, needs a strong exporting sector as well as strong inward investment flows. In 2014 Portugal was the fourth highest recipient of Chinese investment."

Whatever may be agreed today, Greece's prosperity cannot be willed from Brussels. Debt repayments are scheduled out to 2057 and a Greece competently run would likely get debt forgiveness as repayments arise.

However, stumbling from crisis to crisis while insisting on staying in the euro system would be neither good for it or the rest of euro area.

A group called the Commission on Growth and Development that reported in 2008 and included US economists such as Michael Spence and Robert Solow, said that sustained high growth in developing economies is a recent, post-World War II phenomenon.

It said that using GDP figures, “high” is above 7% and “sustained” is over 25 years or more, that a similar picture emerges with variants. Growth at these rates produces very substantial changes in incomes and wealth: Income doubles every decade at 7%.

There are 13 such cases of sustained high growth, and nine are in Asia. These are Botswana, Brazil, China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Malta, Oman, Singapore, Taiwan (China), and Thailand.

Each and every one of these miracles had an export sector as a driver of growth and an increasing share of trade in GDP. There are no exceptions. Every growth miracle involves leveraging the demand and resources of the global economy.

This explains the rise of both the Irish and Singaporean economies since the 1960s.

It does not mean that there should be long-term dependence in supplying to global supply chains but it’s the best way to develop a modern international trading structure and Singapore in particular is focusing on developing its own indigenous sector while China’s electronics sector is still dominated by foreign-owned firms.

Despite Greece’s superior infrastructure, Romania does much better in attracting inward FDI (foreign direct investment). 

Greece could become a failed state like Venezuela

Sunday, June 21, 2015

Australian comedian Jim Jefferies on America's crazy gun culture


This week a white 21-year-old man murdered nine Bible study attendees at the Emanuel African Methodist Episcopal Church in Charleston, South Carolina. It sadly will not be the last case of multiple murders in America where a mentally sick individual can so easily get access to guns.

Last year Australian comedian Jim Jefferies dissected the US gun culture for an audience in Boston (see above).

"In Australia, we had the biggest massacre on Earth," he says, referring to the 1996 Point Arthur shooting in which a 28-year-old Martin Bryant murdered 35 people and wounded 23. "The Australian government went, 'That's it, no more guns!' And we all went, 'Yeah, all right, that seems fair enough really.' Now in America you had the Sandy Hook massacre where little tiny children died, and your government went, 'Maybe we'll get rid of the big guns?' And 50 percent of you went, 'Fuck you! Don't take my guns!'"   

The Washington Post reports on a new study by the Violence Policy Center, a gun control advocacy group, which shows that when guns kill people, they are overwhelmingly used for murder rather than self-defence.

In 2008-2012, guns were used in 42,419 criminal homicides and only 1,108 justifiable homicides (defined as the killing of a felon during the commission of a felony by a private citizen), according to the report — a ratio of 38 to 1.

Finfacts Blog 2012: Annual Gun Deaths: Japan 2; US 32,300

On Thursday, Jon Stewart, the presenter of the "Daily Show," the comedy news program, began with a monologue on the massacre in Charleston. His guest on Thursday was Malala Yousafzai, the 17-year-old Pakistani activist and Nobel Peace Prize winner.

Here’s a transcript of the monologue at the top of his show, which addressed race, terrorism and gun violence:

I honestly have nothing other than just sadness once again that we have to peer into the abyss of the depraved violence that we do to each other and the nexus of a just gaping racial wound that will not heal, yet we pretend doesn’t exist. And I’m confident, though, that by acknowledging it, by staring into that and seeing it for what it is, we still won’t do jack shit. Yeah. That’s us.

And that’s the part that blows my mind. I don’t want to get into the political argument of the guns and things. But what blows my mind is the disparity of response between when we think people that are foreign are going to kill us, and us killing ourselves.

If this had been what we thought was Islamic terrorism, it would fit into our — we invaded two countries and spent trillions of dollars and thousands of American lives and now fly unmanned death machines over five or six different countries, all to keep Americans safe. We got to do whatever we can. We’ll torture people. We gotta do whatever we can to keep Americans safe.

Nine people shot in a church. What about that? “Hey, what are you gonna do? Crazy is as crazy is, right?” That’s the part that I cannot, for the life of me, wrap my head around, and you know it. You know that it’s going to go down the same path. “This is a terrible tragedy.” They’re already using the nuanced language of lack of effort for this. This is a terrorist attack. This is a violent attack on the Emanuel Church in South Carolina, which is a symbol for the black community. It has stood in that part of Charleston for 100 and some years and has been attacked viciously many times, as many black churches have.

I heard someone on the news say “Tragedy has visited this church.” This wasn’t a tornado. This was a racist. This was a guy with a Rhodesia badge on his sweater. You know, so the idea that — you know, I hate to even use this pun, but this one is black and white. There’s no nuance here.

And we’re going to keep pretending like, “I don’t get it. What happened? This one guy lost his mind.” But we are steeped in that culture in this country and we refuse to recognize it, and I cannot believe how hard people are working to discount it. In South Carolina, the roads that black people drive on are named for Confederate generals who fought to keep black people from being able to drive freely on that road. That’s insanity. That’s racial wallpaper. That’s — that’shit you can’t allow that, you know.

Nine people were shot in a black church by a white guy who hated them, who wanted to start some kind of civil war. The Confederate flag flies over South Carolina, and the roads are named for Confederate generals, and the white guy’s the one who feels like his country is being taken away from him. We’re bringing it on ourselves. And that’s the thing. Al-Qaeda, all those guys, ISIS, they’re not s— compared to the damage that we can apparently do to ourselves on a regular basis.

So our guest tonight is an incredible person who suffered unspeakable violence by extremists, and her perseverance and determination through that to continue on is an incredible inspiration. And to be quite honest with you, I don’t think there’s anyone else in the world I would rather talk to tonight than Malala. So that’s what we’re going to do. And sorry about no jokes."

Friday, June 12, 2015

What happened when Portugal decriminalised drugs — Overdose deaths fell to lowest in Europe


Economist Films: For 20 years The Economist has led calls for a rethink on drug prohibition. This film looks at new approaches to drugs policy, from Portugal to Colorado. “Drugs: War or Store?” kicks off a new “Global Compass” series, examining novel approaches to policy problems. 

Portugal decriminalised the use of all drugs in 2001 and according to Der Spiegel, one gram of heroin, two grams of cocaine, 25 grams of marijuana leaves or five grams of hashish are the drug quantities one can legally purchase and possess in Portugal, carrying them through the streets of Lisbon in a pants pocket, say, without fear of repercussion. MDMA — the active ingredient in ecstasy — and amphetamines — including speed and meth — can also be possessed in amounts up to one gram. That's roughly enough of each of these drugs to last 10 days.

Portugal has stopped prosecuting users but the drugs are still illegal to avoid hassle from the UN while using these drugs above the 10-day limit "is nothing more than a misdemeanor, much the same as a parking violation."

Der Spiegel says there were about 100,000 severely drug-addicted people in Portugal in the mid-1990s. Now it has one of the lowest overdose deaths in Europe and with the exception of cannabis, the demand for other illicit drugs has fallen.

Finfacts: Disastrous 44-year War on Drugs and ignoring the evidence

The European Monitoring Center for Drugs and Drug Addiction (EMCDDA) has its headquarters in Lisbon and it published its latest annual report this month.

3.4 % of all deaths of Europeans 15–39 years old are drug overdoses, opioids are found in 66 % of fatal overdoses while overall, "drug overdose continues to be the main cause of death among problem drug users, and over three-quarters of overdose victims are male (78 %). While it is often the deaths among the very young that generate concern, only 8 % of the overdose deaths reported in Europe in 2013 were aged under 25 years. Between 2006 and 2013, a pattern can be observed of decreasing numbers of overdose deaths among younger drug users and increasing numbers among older users. This reflects the ageing nature of Europe’s opioid-using population, who are at greatest risk of drug overdose death."

The report says for 2013, "the average mortality rate due to overdoses in Europe is estimated at 16 deaths per million population aged 15–64. Northern Europe has the highest rates.

In Portugal the use of "legal highs" — such as so-called "synthetic" marijuana, "bath salts" and the like — is lower in Portugal than in any of the other countries for which reliable data exists.

National mortality rates vary considerably and are influenced by factors such as prevalence and patterns of drug use, particularly injecting and opioid use, the characteristics of drug-using populations, the availability and purity of the drugs, reporting practices and provision of services. Rates of over 40 deaths per million were reported in seven countries, with the highest rates reported in Estonia (127 per million), Norway (70 per million) and Sweden (70 per million). Although national differences in coding and reporting practices, as well as possible under-reporting, make it difficult to compare countries, analysing trends over time within individual countries is valuable" — Ireland had a rate of 58 and the UK was at 45.

Romania was 2  and Portugal was at 3 drug overdose deaths per million citizens. The Netherlands was at 10 and the EU average was 17 per million.

In 2012, a general population survey was conducted on a sample of 5,355 inhabitants in Portugal aged 15–64.

Although cannabis remains the most frequently used illicit substance, followed by ecstasy and cocaine, the latest study indicates that the use of illicit substances in Portugal since 2007 might be on the decline (lifetime prevalence of any illicit substance among adults was 12.0 % in 2007 and 9.5 % in 2012; among young adults in 2007 it was 17.4 % and in 2012 it was 14.5 %). In 2012 about 9.4 % of 15-to 64-year-olds had ever tried cannabis, 2.7 % had used cannabis in the last 12 month and 1.7 % in the past month, compared to 2007 when cannabis use prevalence rates were reported at 11.7 %, 3.6 % and 2.4 % respectively. Ecstasy and cocaine have emerged as the second and third most prevalent illicit substances, with lifetime prevalence rates at 1.3 % and 1.2 %, and broader differentiation in prevalence rates among young adults is noted. Use of illicit substances in general is more prevalent among 15- to 34-year-olds. The latest study indicates a slight increase in recent use of LSD among all adults, and also among 15- to 34-year-olds; however, the overall prevalence of LSD remains low. All studies confirmed that males more frequently than females use illicit substances; however, there are some indications that females present higher continuity rates for cannabis, ecstasy and hallucinogenic mushrooms use than men. The latest study also examined prevalence of non-controlled new psychoactive substances. In 2012 around 0.4 % of all respondents and 0.9 % of young adults reported trying a new psychoactive substance at least once in their lifetime."

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