Sunday, October 4, 2015

Extreme poverty to hit record low; Fears of a global bubble; You can print money so long as it is not for people

1 Extreme poverty to hit record low (BBC) The World Bank has said that for the first time less than 10% of the world's population will be living in extreme poverty by the end of 2015. The bank said it was using a new income figure of $1.90 per day to define extreme poverty, up from $1.25. It forecasts the proportion of the world's population in this category to fall from 12.8% in 2012 to 9.6%.

However, it said the "growing concentration of global poverty in sub-Saharan Africa is of great concern". Although the share of people in poverty in sub-Saharan Africa is projected to fall from 42.6% in 2012 to 35.2% by the end of 2015, this will still represent around half of the world's poor.

"We are the first generation in human history that can end extreme poverty," World Bank President Jim Yong Kim said. The bank says the downward trend was due to strong growth rates in developing countries and investments in education, health, and social safety nets.

But Mr Kim warned that continuing the progress would be "extraordinarily hard, especially in a period of slower global growth, volatile financial markets, conflicts, high youth unemployment, and the growing impact of climate change". And the bank warned that poverty is "becoming deeper and more entrenched in countries that are either conflict ridden or overly dependent on commodity exports".


2 Fears of a global bubble (Paul Sheehan in Sydney Morning Herald) We are now deep in bubble territory. Australia's sense of its own prosperity floats in large part on a property bubble while the global economy floats on an unprecedented liquidity created by governments.

"Low rates, almost by definition, build bubbles – stock market bubbles, real estate bubbles, even bubbles in the art market," warns Carl Icahn, one of the world's most prominent financial magnates. Last week, Icahn took the unusual step of releasing a documentary video entitled Danger Ahead, to warn of a coming financial storm: "I don't think it's if it will happen, it's when it will happen."

He regrets his reticence in 2007, when he believed a financial storm was building and acted on his fears, but did not think he was public enough about his concerns. He is not making that mistake twice.

The world economy is already a dangerous place for Australia. The crash in the global commodities markets is as precipitous as the general stock market crash of 2008. Canada, another wealthy, resourced-based economy, is in recession. This year, $11 trillion has been wiped off the value of global stock markets, or more than 10 times the size of Australia's gross domestic product. At the centre of that decline has been the commodities crash.

Icahn thinks worse is to come. He blames corporate greed and a dysfunctional political culture in Washington. He argues that the enormous liquidity, at near-zero interest rates, pumped out by the Federal Reserve and other central banks, is building pressure into the global system. "If low interest rates were a simple panacea, we would never have recessions."


3 You can print money, so long as it is not for people (Zoe Williams in The Guardian) Jeremy Corbyn – along with anyone who challenges the prevailing fiscal narrative – is dangerous and wrong, since he wants to print money. Money cannot be created from nowhere, because there’s no magic money tree. End of.

The flaw in that argument is that all money is created from nowhere. In normal circumstances, it is created from nowhere as credit, by private banks, and lent to us, usually (85% of the time) in the form of a mortgage on an existing residential property. Decades of credit extension have perverted the housing market to turn a mortgage into a lifetime’s bonded servitude.

The economists Jordá, Schularick and Taylor argued convincingly last year that the causes of this economic crisis, the next and the one before are all, fundamentally, the extension of credit and its impact on house prices. So the magic money tree isn’t gushing cash in a socially responsible fashion (if it were used responsibly, it wouldn’t be magic).

The Bank of England has created £375bn in quantitative easing (QE); the Federal Reserve bought $1.25tn worth of mortgage-backed securities in its first round of QE; the European Central Bank had as a core principle that it couldn’t create money until, suddenly, in awesome amounts, it could; the Bank of Korea has a stimulus package, as does the People’s Bank of China; and Japan started it.

Central banks typically justify money creation on the basis that it’s temporary, it’s unfortunate, it’s driven by the crisis and it will ultimately get back to normal. None of that alters the fact that no bank had that money in savings.

The real barrier to debate is, as with so much in the realm of debt and austerity, that it’s conducted in bad faith, with infantilising aphorisms, aimed not at deepening understanding but at shooing away public interest with unavoidable economic realities. As a tactic, this has reached the end of its plausibility.


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