Carbon bubble threat to world economy; Record trade deficit for Japan; IMF wants UK to rethink austerity; Young and hopeless in Pakistan; Gold: One man's currency, another's bet

1 Carbon bubble threat over world economy (Damian Carrington in The Guardian) The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists. "The financial crisis has shown what happens when risks accumulate unnoticed," said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was "very big indeed" and that almost all investors and regulators were failing to address it.

The so-called “carbon bubble” is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses. But the stock markets are betting on countries' inaction on climate change.

Stern said that far from reducing efforts to develop fossil fuels, the top 200 companies spent $674bn in 2012 to find and exploit even more new resources, a sum equivalent to 1% of global GDP, which could end up as "stranded" or valueless assets. The world's governments have agreed to restrict the global temperature rise to 2C, beyond which the impacts become severe and unpredictable. But Stern said the investors clearly did not believe action to curb climate change was going to be taken. "They can't believe that and also believe that the markets are sensibly valued now."

Lord McFall, who chaired the Commons Treasury select committee for a decade, said: "Despite its devastating scale, the banking crisis was at its heart an avoidable crisis: the threat of significant carbon write-down has the unmistakable characteristics of the same endemic problems."

2 Record trade deficit for Japan (BBC) Japan, the world's third-largest economy, has reported a record trade deficit for the year to 31 March. The deficit hit 8.17tn yen ($83.4bn) as a slump in global demand hurt exports, while greater domestic consumption of fuel boosted imports. Analysts said the deficit was likely to shrink in the coming months as the weaker yen will help Japan's exports.

Japan, which has traditionally been known for its exports, has seen a shift in its trade pattern in recent times. The yen has dipped after policymakers introduced aggressive measures aimed at spurring a fresh wave of economic growth and stoking domestic demand. It has seen its imports rise, driven mainly by an increased demand for fuel.

This was after most of its nuclear reactors were shut after the earthquake and tsunami in 2011 which damaged the Fukushima Daiichi nuclear plant and resulted in radiation leaks. As a result, utility providers have had to turn to traditional thermal power stations to generate electricity. These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities. 

3 IMF wants UK to rethink austerity (Larry Elliott in The Guardian) The head of the International Monetary Fund, Christine Lagarde has said that the poor performance of the British economy had left her with no alternative but to call on George Osborne to rethink his austerity strategy. Increasing the pressure on the chancellor to change course, Lagarde – who has previously given consistent and public support to the UK's deficit reduction strategy – said the fund had changed its stance as a result of weak economic figures.

She also signalled that an IMF team would conduct a thorough investigation into the health of the UK when it arrives in London to carry out its annual review under the Washington organisation's article IV programme. Lagarde said she "vividly remembered" the chancellor coming to a meeting of European finance ministers and confessing that he was not proud of "carrying the biggest deficit in the room".

4 Young and hopeless in Pakistan (Maleeha Lodhi in Khaleej Times) What is being billed as Pakistan’s ‘youth election’ will take place in the midst of an unprecedented level of pessimism among young people. This is among the key findings of a report that should be a wakeup call for the country’s political leaders. The report Next Generation Goes to the Ballot Box by the British Council offers compelling evidence of a young generation afflicted by a crisis of confidence, who are losing hope in the future and in the country’s political institutions — parliament, government and political parties.

The report, however, acknowledges that young people’s enthusiasm for the country remains undiminished. But this patriotic fervour is not being leveraged by political leaders by giving them an opportunity to play a role in the country’s destiny. The report’s two most striking features are the depth of despair   among young people and the indication that Pakistan is on the road to a demographic disaster – unless urgent policy actions are taken to resolve the educational ‘emergency’ and create opportunities for the young.

On the first finding, the survey shows that an overwhelming 94% of young Pakistanis feel their country is headed in the wrong direction. This suggests that pessimism has reached a dangerous level with potentially far reaching consequences for social stability. In 2007 this was 50%.

5 Gold: One man’s currency is another’s bet (Floyd Norris in The New York Times) To a believer, gold is different from any other commodity. The others are expected to rise and fall with supply and demand. Sure, gold has uses in the real economy, like jewelry and dentistry. But that is not the important issue. To them, it is money. It cannot be overvalued.

There was a time when gold really was money, when the gold standard reigned supreme. Its record was not an especially good one. There was the minor issue of supply shocks — as when gold from the New World caused drastic inflation in Spain — and there were repeated panics and depressions in the 19th century. A determination to stick to the gold standard helped worsen the Great Depression. 

But to those who revere gold, such problems are minor compared to the sins of fiat money, which is defined as money not anchored in gold but instead determined by central bankers, who can — and eventually will — surrender to political pressures to devalue the currency. Discretion will be abused. 

It may be a coincidence, but this week’s plunge coincided with growing publicity for a currency that sounds a little like gold, at least if you are not paying close attention. That is the digital currency called bitcoin, which has of late been more volatile than a dot-com stock in 1999. Invented in 2009, its supply supposedly is controlled by a rigid computer program, making it, like gold, not subject to central bank manipulation. It got an endorsement last week from The Economist magazine: “Regulators should keep their hands off new forms of digital money such as bitcoin,” the magazine wrote, proclaiming that the bitcoin’s “unique digital signature” makes it “impossible to forge.”

To gold advocates, that kind of talk is dangerous. “The bitcoin is not the answer to the Federal Reserve’s depredations against the dollar,” wrote Steve Forbes, a former presidential hopeful. “The basic reason: It has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions.” Of course, you could say something similar about gold.