Making Gold Green: New Non-Toxic Method for Mining Gold Science Daily (Chuck L)
Robot Econ Primer Robin Hanson
Why the world faces climate chaos Martin Wolf, Financial Times
We are the country’s Civil Defence force Beppe Grillo
Did the IRS illegally target the Tea Party? Seven questions answered. Christian Science Monitor
If Only there was a Public Option: Part 1,452 Jon Walker, Firedoglake
Angelina Jolie Under the Knife CounterPunch (Carol B)
Are Creepy Dudes Now Using Drone Technology For Their Nefarious Ends? Raw Story. You need to read past the tone for the substance
US deficit falls faster than expected Financial Times
Rich Manhattan moms hire handicapped tour guides so kids can cut lines at Disney World New York Post (Lambert)
Everyday Socialism, American-Style, Is Happening Now Gar Aplerovitz, TruthOut
Keynes and Keynesianism New York Times
The Vicious New Bank Shakedown That Could Seriously Ruin Your Life Lynn Parramore, Alternet
YARDENI: I’m Troubled By A 9-Week Trend In The Earnings Measure That Drives The Stock Market Clusterstock. Note Yardeni skews bullish.
What Do Weekly Unemployment Claims Tell us About Recession Risk? Global Economic Intersection
Plosser on the Exit Tim Duy
Antidote du jour (martha r):
Yves here There’s been a great deal of consternation over a report that found that the median Spanish and Italian households are more than three times as wealthy as the median German household. This report says that these differences aren’t what they seem to be.
By Tito Boeri, Professor of Economics at Bocconi University, Milan. Cross posted from VoxEU
The ECB’s recent survey on household finances and consumption threw up some unexpected results – counter-intuitively, the average German household has less wealth than the average Mediterranean household. In line with a recent VoxEU.org contribution from De Grauwe and Ji, this article analyses the principal differences in wealth and income between the main Eurozone countries.
The Household Survey (European Central Bank 2013) is a joint project of the ECB and all the Eurozone central banks providing harmonised information on the balance sheets of 62,000 households in 15 Eurozone countries (all except Ireland and Estonia).1
Media hype had been generated by the ranking of the countries’ median household wealth results, especially by the fact that:
• Germany was in last place with €51,400.
• Italy and Spain were significantly above France with wealth equal to €173,500 and €182,700 respectively, compared to the French households’ €115,800.
The mean household wealth averages paint a very different picture to current narratives about the relatively wealth of nations in the Eurozone. The relative dispersion in the estimates is much smaller: the German household mean is €195,200, while for France, Italy and Spain it is €233,400, €275,200 and €291,400 respectively. Moreover, Germany climbs six places in the wealth ranking.
As already noted by De Grauwe and Ji (2013), Germany’s position at the bottom of the median ranking is simply due to its large wealth inequality compared with the others. This is confirmed by observing that the concentration of wealth, measured by a Gini index of 0.76, is much higher in Germany, while for France, Italy and Spain the estimate is smaller (0.68, 0.61 and 0.58 respectively).
Household Size Matters
This analysis does not take account of household composition in the various countries. The distribution of household wealth across countries is affected by differences in the demographic characteristics of households (age, education, household size):
• In northern countries, households are generally small, often composed of a single member.
• In the south it is not unusual to find many people, even from different generations (grandparents, parents and children), living together.
The splitting up of household members produces a sort of partition of wealth among the households they generate, as happens when young members exit the household to form a new family.
A simple way to sterilise for household size is to consider per capita averages:
• The per capita wealth figure for Italy and Spain is €108,700, slightly higher than for France (€104,100) and Germany (€95,500).
Hence, the differences between per capita averages are much smaller than those observed between household medians. Dealing with sample estimates, we observe that most of the above differences are not statistically significant, although National Accounts estimates confirm that per capita wealth in Germany is a little lower than in Italy, Spain or France (by 3%, 4% and 11 % respectively) (European Central Bank 2013).
Thus, there are no substantial differences in the averages for per capita wealth and that the media hype is the result of a specious reading of part of the results.
Income and Poverty
Other economic indicators paint pictures that are more favourable to Germany:
• German mean gross household income is about €43,500.
• In the other three countries the average is between €31,000 and €37,000.
If we consider household equivalent income, a measure of the resources available at the individual level that takes household size and composition into account, the income gap appears larger2: the German mean gross equivalent income is about €28,000 (the median €22,000), compared with averages ranging from €19,000 to €21,000 (and the medians from €15,000 to €17,000). Even taking into account the different purchasing power of income in the four countries, the results are similar for both means and medians. In short, Germans have a significantly higher income with respect to the citizens of the other three major Eurozone countries with similar equivalent income statistics.
Figure 1. Net wealth statistics (1000€)
As to the poverty distribution, the proportion of relatively poor individuals is calculated by adopting a unique poverty line (half the Eurozone median equivalent income adjusted for the different price levels3) and a specific poverty line for each country.The second clearly defines poverty only in terms of the relative position (and prices) of the household in its country’s income distribution, while the first treats all households as belonging to a single area, although accounting for the different level of price among countries. Figure 3 shows that the two definitions do not produce the same picture. In the first definition:
• Poverty appears to be more widespread in Italy and Spain and less widespread in France and Germany.
• Adopting national poverty lines, poverty is more widespread in Italy and Germany than in Spain and France.
These results are only a small part of what can be obtained analysing the rich database that is available to researchers. It would be worthwhile taking the study of households’ economic behaviour in the Eurozone further by means of analyses that consider various dimensions (socio-demographic, economic and institutional) of cross-country heterogeneity while avoiding hasty conclusions.
Figure 2. Income statistics (1000€)
Figure 3. Distribution of poverty (per cent)
It’s been slow in coming, but religious leaders are starting to speak out against the mechanisms and high social cost of austerity. One dramatic but ineffective effort was when the Archbishop of Cyprus offered to contribute all the church land in Cyprus to a rescue package. He also urged Cyprus to exit the eurozone:
Archbishop Chrysostomos II of Cyprus said his country should withdraw from the European Union as the EU will fall apart and cease to exist in the future.
“The economies of Spain, Portugal and Italy are currently in danger. And if the economy of Italy is destroyed just like our economy, the EU will not withstand,” Archbishop Chrysostomos said in an interview with Russia’s Channel One television channel.
“People who rule the European Union, and particularly those making decisions in the so-called troika, do not understand many things and it leads to the collapse of the EU. This is why I believe we [Cyprus] should withdraw from the union before the collapse takes place,” he added.
On May Day, the new pope called for less austerity and more jobs. From the New York Times via Daily Kos:
I think of how many, and not just young people, are unemployed, many times due to a purely economic conception of society, which seeks selfish profit, beyond the parameters of social justice,” the pope said. “I wish to extend an invitation to solidarity to everyone, and I would like to encourage those in public office to make every effort to give new impetus to employment.
A much starker depiction of what is at stake came today in the Telegraph, when Ambrose Evans-Pritchard wrote up an interview with the Archbishop of Toledo. The prelate discussed not only the severity of individual suffering, but more important, the cracks in the social order. This is a much bigger danger, and one that the Troika seems to treat far too casually. Greece has been broken on the rack and is in the process of becoming a failed state. Ireland escaped a similar fate by having a disproportionately large export sector (over 100% of GDP) which meant deflating early was tantamount to a currency devaluation. Even so, large-scale emigration has also helped reduce the level of official unemployment.
Spain is going down the Greece path, and having such a large country unravel socially and politically is likely to have bigger, if not readily foreseen, consequences. Unemployment around Toledo is 31%, 4 points over the national average, and youth unemployment is a mind-numbing 64%. Distress is widespread:
Europe’s Catholic bishops know first-hand from their Cor Unum charitable network just how desperate it has become. “We can try to mitigate the effects by giving basic help to people left totally unprotected, but we can’t create jobs,” said the Archbishop.
“We are seeing families who used to middle class needing help. This is totally new. As a matter of honour, they won’t come to us until they have exhausted everything.”…
Marisa Martinez, the volunteer director of Caritas in Toledo, said the Catholic charity is now helping 40,000 people in a province of 700,000, often with bags of food. Each family receives 12 kilos a month, mostly beans, oil, milk, and pasta. “We pass on whatever we get in donations. It is all done quietly to protect the dignity of the families. They take the food away and cook it at home,” she said.
Spanish bourgeois pride works to the government’s advantage, since people have to be willing to admit to their desperation in order to figure out how to work together to alleviate it. Even so, some commentators seem to think there’s a riptide beneath the resigned surface:
El Mundo fears a slow-fermenting ‘crisis of the regime’, with almost every institution — including the monarchy — in disrepute. It likens the mood to “pre-revolutionary” France in the late 1780s.
The Archbishop, speaking in the austere episcopal palace of Spain’s ancient capital, said the current crisis is doing far more damage than the recession in the mid-1990s when unemployment briefly spiked above 24pc. On that occasion peseta devaluations let Spain regain competitiveness and recover gradually despite austerity cuts.
This time the country seems trapped in slump. The long-term jobless rate is much higher. Unemployment benefits taper off after six months, and stop after two years. There are almost two million households where no family member has a job.
Catholic leaders are pushing for change in an effort spearheaded by the “firebrand” cardinal Reinhard Marx of Munich. Criticism from the church may be harder to brush off than that of politicians.
Nevertheless, so far, the objections are carefully worded and mild in comparison to the level of distress. In advanced economies, except for pet issues like abortion, the Catholic Church has steered clear of politics. It’s not clear that mere finger wagging would do, and this Church lacks the appetite to encourage protests. But its leaders do have media access. Given that there is now a rift among Eurozone leaders as to whether it is necessary to ease up on budget-trimming and focus more on growth, they might be able to provide more visceral images and stories of the long-term costs of putting budget targets over vulnerable social orders. But orthodox economic views are so deeply entrenched that having Catholic leaders speak out is likely to be too little, too late. And sadly, they seem to be the only prominent figures who can invoke the language of morality and justice against a cruel and destructive economic calculus.
Josh Rosner of Graham Fisher testifies before a subcommittee of the House Financial Services committee today on why Dodd Frank has not ended too big to fail, but also has managed to entrench the megafirms’ advantaged position.
Rosner provided Congressional testimony on this same topic in 2011, and deemed Dodd Frank’s plans for winding down systemically important firms to be unworkable. Rosner has good company here; the BIS and the international bank lobbying group the IIF reached the same conclusion.
Rosner stresses that he’s not advocating the repeal of Dodd Frank but describing what is flawed so it can be remedied or replaced, and that he sees the sort of fixes embodied in the bills approved in the House to weaken derivatives regulations as a step in the wrong direction.
Rosner focuses on Articles I and II of Dodd Frank and describes how their plans to deal with resolving large firms has only made matters worse. It’s key to understand that these two sections are somewhat at odds with each other. Dodd Frank peculiarly provides for two ways to wind up systemically important firms. Title I says they should prepare for bankruptcy. They need to clean up how they are organized and make sure activities fit or can be mapped into legal entities and prepare living wills, which are plans for how they would wind themselves up. But confusingly, banks can also be “resolved” which is more like “rescued with a little pain inflicted on investors” under Title II. Title II provides for a second way to deal with stressed financial firms, which includes having the government provide what amounts to debtor-in-possession financing while the bank is restructured. This, sports fans, is what is otherwise known as a bailout.
In his previous testimony, Rosner criticized how having two ways to resolve a firm would create uncertainty in times of stress:
It is especially problematic that Dodd-Frank allows for ambiguity when defining institutional failure. The manner in which one is allowed to fail determines and defines its “going concern” value when alive. Every firm must be able to fail under the same regime—a different resolution regime for a select group of firms will create incentives for creditors of those firms to treat them differently in life than the “less important” firms. It was this ambiguity that created the incentives for Lehman to make itself less able to fail and thus less easily resolved.
Put it another way: you wouldn’t need Title II resolutions, described in the bill as the Orderly Liquidation Authority, if the authorities believed they could put them down using the bankruptcy code.
And, not surprisingly, the banks haven’t been fully cooperative in drawing up those living wills. And why should they? Follow the incentives. In a bankruptcy, top management is out and a trustee is in charge. By contrast, in a Title II resolution, the odds are good they’d survive. As Rosner writes:
While a true liquidation would result in the replacement of management, in the FDIC’s proposed regime, key management of failed operating subsidiaries would be able to continue to manage the newly recapitalized firm. Although the FDIC claims they would replace personnel there is no requirement to do so. Their decisions will be arbitrary and driven by both the perceptions of regulators and market realities. The risk remains that, even in instances in which it is clear that management should be replaced there may be a lack of a deep bench of available industry management. This was the reality during the past crisis. Artificial enrichment of personnel responsible for corporate failure is only one of the major problems with Title II.
So not surprisingly, the latest reports, filed a month ago, showed that the banks were going through the form of preparing living wills and far from having viable plans. From the Wall Street Journal:
U.S. regulators are demanding extensive new information from banks detailing how the government could dismantle their operations in the event of a crisis, saying information provided so far presents “obstacles” to an orderly resolution….
Banks are being asked to provide specific discussions of each of the five “obstacles” identified by regulators in the living wills, as well as a discussion of what steps they plan to take to mitigate the problems.
Now in fairness, the banks have a point. We’ve said the the OLA is unworkable, and so are bankruptcies, because resolution is a national process but these firms are international, with many trading books passed from time zone to time zone over a 24 hour day. Another major impediment are derivatives. Internationally recognized expert Satyajit Das has written about how “largely untested legal arrangements failed to work as intended” in the Lehman bankruptcy. He has also discussed at some length about “standardized” derivatives documentation isn’t as standard as you’d think, how many contain options as to how and when they are closed out (which will inevitably be exploited whenever possible) and how their valuation is often contested. This implies that reducing TBTF firm OTC derivative exposures and revisiting how they are wound down in bankruptcy and resolutions are essential to making a resolution a real possibility, but no one seems willing to cut that Gordian knot.
Rosner draws out the implications of the OLA:
The FDIC recognized that a “liquidation” authority would be deleterious to financial markets in a moment of crisis. Restructuring a firm, not liquidating a firm, is the proven way to preserve an institution’s value….Bankruptcy has and should continue to be the preferred means to restructure the assets of failed firms. Instead, OLA is effectively a cram down that requires a huge amount of debtor-in-possession (DIP) financing from the Treasury.
This financing is a taxpayer-funded and anti-competitive subsidy. It supports the continuation of a banking system in which “All animals are equal but some animals are more equal than others”. This is perhaps the easiest way to understand that these companies are far too large; the system simply can’t fund them in bankruptcy..
Simply stated, Title II creates further subsidies for a handful of firms that will be costly to taxpayers and bestow further advantages to systemically important financial institutions (SIFIs) relative to non-SIFI firms…. The OLF will be cheap and will provide great benefit – only the non-systemically holding company creditors will take losses, and the company will emerge from OLA much as it entered, to do it all again. We can’t allow this to happen – OLA rewards companies for becoming “systemically important” and overly influential, it hurts smaller companies, and stifles innovation. The government created it and the government can and should take it away
I urge you to read Rosner’s testimony in full. It’s short, well written, and makes some important technical issues accessible to laypeople. And it makes the key point deadly clear: Dodd Frank didn’t address too big to fail adequately, but measures that water it down only make a bad situation worse.
By Claude Salhani, journalist, author and political analyst based in Beirut, specializing in the Middle East, politicized Islam and terrorism. He is also the former editor of the Middle East Times and. C the former International Editor with United Press International and also ran UPI’s Terrorism & Security Desks. Cross posted from OilPrice
A timely article by Wade Stone for Global Research examines what would happen to the oil producing nations of the Gulf in the event that Israel would target Iran’s nuclear reactors and facilities; the reply and the scenario given is nothing short of a nightmare. Most, if not all, the cities in the region of the Arabian Gulf – Dubai, Abu Dhabi, Kuwait City, Riyadh and others – would become uninhabitable for decades to come.
The article provides a good study of the ensuing catastrophe that would result. Though frightening as it is, the article looks at the issue mostly from a technical perspective and does not convey enough the hellish reality of the immediate panic that would befall the region and indeed the world, given the repercussions resulting from the inter-dependency of nations today.
In the event of an attack by Israel on the Iranian sites at Bushehr, Natanz, Arak and Isfahan in order to prevent the Islamic Republic’s efforts to acquire nuclear weapons, and if the fallout was to hit certain weather conditions prevalent in the Gulf region the result is that nearly the entire region would become uninhabitable for decades to come. And says the author, the disaster would not be limited to the region, but depending on the weather pattern, the fallout may very well hit Israel and even Turkey.
Much of what would happen depends largely on the climatic conditions at the time of the attacks. Great desert storms known as the shamal and the sharqi, sweep down and blankets the entire region and would bring with it contaminated sand particles.
If you saw one of the Mission Impossible movies where Tom Cruise chases one of the bad guys through the streets of Dubai as a monstrous sand storm blows in, then you may have a better idea of what these storms refer to. Now imagine that same sand storm blow through the region only this time each little particle of sand contaminated by nuclear fallout. A single particle is all that is needed to contaminate a human being.
The author of the article states that the storm travels in a semi-circular route, at a speed of 30 to 300 kilometers through the United Arab Emirates, Qatar, Bahrain, Oman, Kuwait and Saudi Arabia. In other words the major oil producing centers as well as a large number of refineries would become contaminated.
Aside from the ecological disaster of which there would be no precedent, there is also the human aspect of the tragedy. And then the economic fallout as oil production from the region would plummet overnight.
Think of the disaster that such an impact would have on the price of oil if suddenly more than 17 million barrels per day comprising the joint production form Saudi Arabia (10 million bbl/d), the UAE (3.087 million bbl/pd) Qatar (1.63 million bbl/pd) and Bahrain (44,800 bbl/pd). Not to mention the oil from Iraq and Iran, that would plunge the world into one of the greatest crisis ever experienced.
Consider the consequences: the first tier would be ground zero, the immediate areas affected by the fall out. Here there would be sheer hysteria and pandemonium on a biblical scale as that area would witness a mass exodus by hundreds of thousands of residents, foreign and nationals, all trying to get out of the contaminated area as people in total panic would end up fighting each other for the last seats on airplanes out of the region.
Then imagine if you will the insanity as those who failed to secure air travel would get in their cars and start driving west.
The second tier of trouble would immediately be felt as an unprecedented oil shortage would create havoc on the world markets and stock exchanges. Wall Street, the FT100 and other international markets would crash, companies would collapse overnight.
The third tier of disaster would come from countries slightly removed from the front-line states as the after effects begin to settle in.
In terms of damages, said the author of the report “Think of the nuclear accident at Fukushima” in Japan says the author, “and multiply it by ten.” Fukushima was unquestionably the world’s worst nuclear disaster to date, surpassing Chernobyl in Ukraine, where the death from cancer reached a million.
“Bombing Iran’s nuclear facilities would leave the entire Gulf State region virtually uninhabitable,” writes Stone.
Okay, those in favor of military action by Israel and/or the United States on Iran’s nuclear facilities may argue that this is a worst case scenario and that any strike by Israel would be “surgical and tactical and precise.” And they may well be right. But even a best-case scenario where minimum nuclear waste is released into the atmosphere and claims that the heat from the fires caused by the bombing would incinerate all nuclear particles, there would still be some contamination.
So after all perhaps the great cities of the region would not become uninhabitable as imagined by one writer. Indeed, it may be hyped in order to grab readers’ attention. Maybe in the best case scenario there would be “minimum collateral damage” where “only” a million or so people would die over the span of a decade from cancers brought about by the attacks. What was it that Josef Stalin used to say about killing a million people? “It’s only a statistic.